TREND OF MACRO ECONOMIC VARIABLE ESPECIALLY ON DOMESTIC SAVINGS AND DOMESTIC EXPENDITURE, NATIONAL SAVING AND ITS IMPACT ON ECONOMY OF A COUNTRY: A CASE OF SRI LANKA

Abstract

This paper analyses the pattern of domestic saving, domestic expenditure during last fifteen years and the impact of these two variables on gross domestic product of Sri Lanka for the same period. Saving is the macroeconomic variable which is not only contributes to the investment but to control the general price level of an economy but too much of saving in a given year of a Country will impact on the economy by negatively. That is, it reduces the purchasing power of the people in a given year and slowdown the business hence demand for business loans falls. On the other hand if saving falls in a given year then the purchasing power of the people of the Country will increase which also impact the economy negatively. That is, the general price level of the Country will increase hence level of inflation will increase. So, the policy makers of the Country focus on a policy carefully to balance the saving and expenditure in a given year. The study further reveals that there should be focused on Gross Domestic Expenditure and National Saving since these two variables impact on Gross Domestic Product positively. Gross Domestic saving and Unemployment Rate are not significant and have negative impact on the GDP since the p value of the Domestic Saving and Unemployment Rate are more than p values (>0.005). As such, a proper mechanism or a way to be set up to increase the private consumption and the government investment without affecting the component of National Saving such as domestic saving and attracting foreign investment as saving of the government to economic growth of Sri Lanka in the next years.