The role of R&D and economic policy uncertainty in Sri Lanka’s economic growth

Financial Innovation

Table 4 Impact of EPU on TFP growth

	(1)	(2)	(3)	(4)
Constant	− 0.201** (0.034)	− 0.129 (0.243)	− 0.016 (0.886)	0.057 (0.666)
\(\left( {\Delta lnX_{t}^{d} } \right)*\left( {\Delta EPU_{t} } \right)\)	− 0.448** (0.010)	− 0.383** (0.023)	− 0.322** (0.030)	− 0.327** (0.041)
\(\left( {\Delta lnX_{t - 1}^{d} } \right)*\left( {\Delta EPU_{t - 1} } \right)\)		0.285** (0.037)	0.414*** (0.002)	0.436*** (0.002)
\(\left( {\Delta lnX_{t - 2}^{d} } \right)*\left( {\Delta EPU_{t - 2} } \right)\)			0.386*** (0.002)	0.401*** (0.002)
\(\left( {\Delta lnX_{t - 3}^{d} } \right)*\left( {\Delta EPU_{t - 3} } \right)\)				0.009 (0.941)
\(\Delta lnX_{t}^{f}\)	0.056 (0.404)	0.036 (0.608)	− 0.002 (0.974)	0.002 (0.973)
\(ln\left( {X/Q} \right)_{t}^{d}\)	0.067** (0.034)	0.071** (0.023)	0.064** (0.020)	0.071** (0.016)
\(ln\left( {X/Q} \right)_{t}^{f}\)	0.026** (0.029)	0.017 (0.234)	0.002 (0.898)	− 0.008 (0.654)
\({\text{ln}}\left( {A^{JPN} /A^{LKA} } \right)_{t - 1}\)	0.063 (0.115)	0.031 (0.452)	− 0.011 (0.779)	− 0.031 (0.494)
\(\delta\)		− 0.098 (0.668)	0.478* (0.077)	0.519* (0.075)
\(R^{2}\)	0.246	0.341	0.528	0.545

The table shows estimates of the TFP growth regression: \(\Delta lnA_{t} = \gamma_{0} + \gamma_{1} (\Delta \ln X_{t}^{d} )*(\Delta EPU_{t} ) + \gamma_{2} (\Delta \ln X_{t - 1}^{d} )*\left( {\Delta EPU_{t - 1} } \right) + \gamma_{3} (\Delta \ln X_{t - 2}^{d} )*\left( {\Delta EPU_{t - 2} } \right) + \gamma_{4} (\Delta \ln X_{t - 3}^{d} )*\left( {\Delta EPU_{t - 3} } \right) + \gamma_{5} \Delta lnX_{t}^{f} + \gamma_{6} ln\left( \frac{X}{Q} \right)_{t}^{d} + \gamma_{7} ln\left( \frac{X}{Q} \right)_{t}^{f} + \gamma_{8} ln\left( {\frac{A}{A}_{LKA}^{JPN} } \right)_{t - 1} + e_{t} .\) In this regression model, EPU influence TFP growth (\(\Delta lnA\)) through domestic R&D (\(X^{d}\)). This impact is captured by the interaction terms between \(EPU\) and \(X^{d}\). We include the contemporaneous interaction term as well as lagged interaction terms up to three lags, to capture the persistent impact of EPU on R&D and TFP growth. From the second (2) to fourth (4) regressions, we estimate the joint impact of the interaction terms, and this is captured by the parameter, \(\delta = \mathop \sum \limits_{i = 0} \gamma_{i + 1}\). The variables, \(X^{f}\), \(X/Q\), and \(A^{JPN} /A^{LKA}\), denote, respectively, Japan’s R&D, Sri Lanka’s R&D intensity measured as R&D per labour, and technology frontier. Coefficients and p-values are, respectively, outside and inside the parentheses
*, **, and *** Statistical significance at 10%, 5%, and 1% levels. Our sample is from 1980 to 2018