A STUDY ON THE BEHAVIORAL PATTERN OF UNEMPLOYMENT AND INFLATION IN SRI LANKA

Abstract

Today every country is committed to design policies to keep the rate of inflation and unemployment in reasonably low level. These goals certainly seem to be sensible, since high rates of unemployment and inflation cause enormous economic waste and social hardships. In Sri Lanka during the last few years the rate of inflation and the rate of unemployment were reported to be higher. This study was undertaken to identify the relationship between the unemployment and the inflation and to examine the behavioral pattern of these variables for last five and half decades. Secondary data is used for this analysis and the source of data is Central Bank Annual Reports. The study covers a 55-year period from 1948- 2003. The methodology used for the study is descriptive analysis where graphs and tables are used to analyze the situation. In this context, time series analysis is conducted to evaluate the relationship covering different political and policy regimes. In order to get an accurate interpretation, a regression analysis has been conducted. The results of the study provide valuable supplementary evidence to the view of the Professor A. w. Phillip, which indicates a negative relationship between rate of inflation and Unemployment. A significant relationship can be observed during the post liberalization period than the pre liberalization period. Further, it is observed that the value of real GNP has increased straightly during the past decades whereas the rate of unemployment has shown a declining trend. This gives an indication of labour intensive economic activities in Sri Lanka.

Keywords: GNP, Inflation, Liberalization, Unemployment

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