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Sri Lanka’s Experiment with Devaluation: VAR and ECM Analysis of the Exchange Rate Effects on Trade Balance and GDP

Research output: Contribution to journalJournal article

Published

Journal publication date2004
JournalThe International Trade Journal
Journal number4
Volume18
Number of pages33
Pages269-301
Original languageEnglish

Abstract

The objective of this study is to empirically analyze the impact of the devaluation of the Sri Lankan currency (rupee) on Sri Lankan trade balance and gross domestic product. The World Bank and the International Monetary Fund (IMF) have been promoting devaluation as a policy tool for economic growth and stability in LDCs. However, there is substantial research supporting the “J-Curve” effect and contractionary effects on economies due to devaluation, especially for less developed countries (LDCs). The results show a contractionary impact on the Sri Lankan output.