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Real Effective Exchange Rate and Export Performance: The Case of Sri Lanka

Author:

S. D. Nilanka Chamindani

Central Bank of Sri Lanka, LK
About S. D. Nilanka
Senior Assistant Director, Regional Development Department
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Abstract

This study examines the determinants of manufacturing exports of Sri Lanka with specific emphasis on the impact of the real effective exchange rate (REER). The hypothesis that persistent appreciation of the REER has negative implications on exports, when other determinants of manufacturing exports remain constant, is tested using the reduced form of the export equation with annual data for the period 1970-2014.The export equation is estimated using the Autoregressive Distributed Lag (ARDL) method. The results suggest that the REER is a key determinant of export performance of Sri Lanka. The world demand is also a contributory factor. If Sri Lanka takes corrective macroeconomic policy measures to maintain the REER at a realistic (market consistent) level and to cater to the upper income markets by improving the quality of products and linking with global supply chain networks, it would enable Sri Lanka to secure international competitiveness.
How to Cite: Chamindani, S.D.N., 2018. Real Effective Exchange Rate and Export Performance: The Case of Sri Lanka. Staff Studies, 47(2), pp.71–99. DOI: http://doi.org/10.4038/ss.v47i2.4706
Published on 31 Dec 2018.
Peer Reviewed

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