Trade Openness and Sustainability in Sri Lanka: Evidence from a Triple Bottom Line ARDL Evaluation of SDG-aligned Development Pathways

Abstract

Rapid globalisation creates growth opportunities, however, its environmental and distributional effects remain particularly uncertain for small developing economies with structural and institutional constraints. While trade is central to development strategies, many existing research examines economic, environmental and social outcomes separately, limiting its policy relevance. This study analyses the impacts of trade on Sri Lanka’s economic growth, environmental quality and social equity from 1980 to 2023 using an Autoregressive Distributed Lag framework, providing the first country-level assessment integrating all three dimensions. The results show that trade liberalisation supports economic growth in the short run but does not generate long-run effects due to underlying structural constraints rather than macroeconomic responsiveness. Nevertheless, trade openness is not a significant driver of carbon emissions and environmental outcomes are shaped mainly by domestic energy composition and industrial activity. Socially, trade openness is associated with higher income inequality, indicating an uneven distribution of gains across population groups and sectors. The overall findings reveal that trade’s impacts are asymmetric and policy contingent across the three pillars of sustainability. These results challenge growth-first development strategies that treat trade openness as an end in itself and highlight the need to align trade integration with energy transition policies and inclusive development strategies. This ensures that trade openness contributes to sustainable and equitable development outcomes in line with Sustainable Development Goals (SDGs) 7, 8, 9, 10, 12 and 13.