An Investigation of the Various Factors Influence on Exports in Sri Lanka

Abstract

International trade as an engine of economic growth since a nation's economic growth and development depends on the international trade. Even though, Exports of goods and services as a share of GDP have been declining for now over a decade in Sri Lanka. In this background, the present study attempts to identify the influence of various factors on exports in Sri Lanka by gathering time series data over a period 1977 to 2015. To obtain the study objective, Augmented Dickey Fuller unit root tests, Normalized Cointegration test and Vector error correction model were employed by using the explanatory variables namely GDP per capita growth, gross capital formation, inflation, foreign direct investment and exchange rate.

According to the results, the Normalized Cointegration test found that gross capital formation and inflation are positively influence on Sri Lanka's exports whereas GDP per capita growth negatively influence on Sri Lanka's exports. Further, other explanatory variables including foreign direct investment and exchange rate are not associated with export since those variables having insignificant results. Finally, short – run impacts of selected explanatory variables found using Vector Error Correction test. Accordingly, GDP per capita growth, foreign direct investment and exchange rate are associated with exports in short- run. In particular, foreign direct investment positively impacts on exports while GDP per capita growth and exchange rate found to be negatively impacts.