Impact of the Effective Exchange Rate on the Trade Balance of Sri Lanka: Evidence from 2000 to 2013

Senadheera, Yashodha Warunie

doi:10.1177/0973801014568146

Cited by 4 publications

(4 citation statements)

References 18 publications

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“…Thus, the LKR would appreciate this setting. This finding is consistent with the research of Senadheera [ 16 ] who examined the trade balance and exchange rate in Sri Lanka and inferred that depreciation of the currency would be detrimental to trade in the long run. These findings are evident in Sri Lanka and a similar scenario have been continuing for decades, with the depreciation of the LKR thus pushing to further widen the trade deficit.…”

Section: Resultssupporting

confidence: 92%

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Exchange rate sensitivity influencing the economy: The case of Sri Lanka

Thevakumar

Jayathilaka

2022

PLoS ONE

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This particular study investigated the possibility of modelling the exchange rate volatility of the USD/LKR currency pair and analysed whether macroeconomic factors influence the exchange rate. To model the exchange rate volatility, a combination of Autoregressive integrated moving average (ARIMA) and generalized autoregressive conditional heteroskedasticity (GARCH) family models were used. The ARDL model was utilized to explore the presence of dynamic short-run and long-run relationships between the exchange rate and macroeconomic variables. The ARDL model empirical findings inferred that a long-run relationship does not exist between any of the examined macroeconomic variables and the exchange rate. In contrast, a short-run relationship exists between exchange rate lag one, exchange rate lag two, inflation, and merchandising trade balance. Thereby, as per the findings improving the merchandising trade balance and minimising inflation would minimise volatility in the exchange rate. All stakeholders who are exposed to foreign exchange volatility including policymakers, importers, exporters, and financial institutions can benefit from this study’s findings. This research focused on the most recent economic phenomena of Sri Lanka and used Gross official reserve as a variable that was rarely used in existing literature on Sri Lankan exchange rate.

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Section: Resultssupporting

confidence: 92%

“…It is commonly accepted that the balance of trade has an impact on volatility in exchange rates. A study conducted by Senadheera [ 16 ] investigated the effect of the exchange rate on the trade balance in Sri Lanka. The study sample period included quarterly data from 2000 to 2013.…”

Section: Literature Reviewmentioning

confidence: 99%

Exchange rate sensitivity influencing the economy: The case of Sri Lanka

Thevakumar

Jayathilaka

2022

PLoS ONE

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“…It is evident from the results of various studies that a stable exchange rate may help in strengthening the economic growth of a country (Ghartey, 2013; Razzaque, Bidisha, & Khondker, 2017). However, it may not always be a significant indicator of economic growth (Bristy, 2014; Senadheera, 2015). Nevertheless, exchange rate stability is always desired for international trade and positioning.…”

Section: Estimation Technique and Empirical Examinationmentioning

confidence: 99%

Impact of Selected Macroeconomic Determinants on Economic Growth in India: An Empirical Study

Sharma

Kautish

Kumar

2018

Vision: The Journal of Business Perspective

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Due to the socio-economic, infrastructural and governance peculiarities, identification of key macroeconomic factors determining the economic growth in developing countries becomes a complicated case. The present study attempts to assess the impact of foreign aid, government consumption expenditure, foreign direct investment, trade openness, exchange rate, human capital development, and inflation on economic growth in India by using yearly data for the period of 46 years, that is, from 1971 to 2016. An autoregressive distributed lag (ARDL) bounds model enables to examine the short-run and long-run impact of selected determinants on economic growth during the study period. The outcomes of the study find that in the long run, foreign aid, the government’s final consumption expenditure and foreign direct investment have a positive and significant impact on economic growth, whereas, economic growth has been negatively influenced by exchange rate and human capital development. Contrary to the long run, foreign aid has a negative and significant impact on economic growth in the short run. The short-run outcomes show that all the selected macroeconomic determinants have either negative or positive influence on economic growth. To ensure the long-run economic growth, besides regulating the exchange rate fluctuations, policies related to export -import and human capital development need to be re-examined.

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“…Findings from these studies are also inconclusive. Senadheera (2015) finds no long-run relationship between real effective exchange rate and the trade balance, while he finds an adverse effect of nominal effective exchange rate on trade balance. Namely, according to their results, depreciation of nominal effective exchange rate lead to a deterioration of the trade balance in the long run in Sri Lanka.…”

Section: Literature Reviewmentioning

confidence: 99%