The Impact of Exchange Rate Volatility on Industrial Export Performance in Sri Lanka: VECM Approach

Abstract

Exchange Rate Volatility has had a significant effect on industrial export performance in Sri Lanka as a third world country. The Purpose of this paper is to examine the Exchange Rate Volatility on Export Performance based on the Industrial Sector in Sri Lanka for the Period of 2000 to 2017, using monthly data collected from EDB, CBSL, SLC & IMF. During the analysis VECM approach was incorporated into the study. Exchange Rate Volatility was calculated using SMA Model with LKR/USD return series. The study focused on 5 Export Trading Partners, United Kingdom, United States, India, Germany and Belgium with the limitation of five Export products. The main focus is to model Exchange Rate Volatility on Economic Growth using the determinants of Real Exports, Real Effective Exchange Rates, Real Exchange Rate Volatility, Weighted Average of Relative Price and Real Foreign Income for the analysis of Long Run Relationship. The resulting models may be used to produce forecasts in the Future. Results reveal that Real Effective Exchange Rates and Exchange Rate Volatility have a negative impact on Real Exports for the selected Exporting Partners in the long run. Finally, there is a significant relationship between Exports and the Exchange Rate Volatility

Keywords: Economic Growth. SMA, Exchange Rate Volatility, Industrial Exports, VECM Model


Article Review Status: Published

Pages: 70-86 (Download PDF)

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