Macroeconomic Determinants and Socio-Economic Drivers of Vehicle Purchase Preferences in Sri Lanka: A Vecm-Based Analysis

This study examines how economic policies influence the purchasing decisions of Sri Lankan consumers in the motor vehicle market. Monthly new vehicle registrations are used as a proxy for overall consumer demand. Data on vehicle registrations, along with monetary, fiscal, and socio-economic indicators from 2017 to 2023, were collected from multiple sources, including the Central Bank of Sri Lanka, Sri Lanka Customs, the Department of Motor Traffic, and the Sri Lanka Tourism Development Authority. The analysis employs several econometric techniques, including the Johansen cointegration approach, the Vector Error Correction Model (VECM), and Wald causality tests, to examine relationships among the variables. The findings indicate that consumer demand for motor vehicles is closely associated with key monetary policy variables, selected fiscal indicators, and socio-economic stability, particularly in the long run. Real interest rates, motor vehicle tax revenue, and the government wage index exert significant negative effects on vehicle demand in the long term. The VECM results show that deviations from long-run equilibrium adjust at a rate of 46.8 per cent per month, implying stabilisation within approximately 1.1 months. Overall, monetary factors exert a stronger influence on vehicle purchasing behaviour than fiscal policies, highlighting the importance of monetary stability and socio-economic improvements in policy formulation.