Empirical Evaluation of Performance and Effect of Currency Devaluation with Special Reference to Export and Import under Policy Reforms on Sri Lanka's Agriculture

Abstract

In this paper an empirical evaluation of the performance of Sri Lanka's agricultural sector under policy reforms with respect to the exchange rate implications is made. By the policy reforms, the exchange rate reforms made considerable impact on the agriculture exports, input and food imports and economic development. In our general equilibrium growth accounting approach, the real contributions of agricultural exports, food imports and fertilizer price reveal that without the exchange rate reform the contributions would have been really detrimental to the agricultural production as well as to the economy of Sri Lanka. In this way, Sri Lanka's policy reform had a positive effect on the economy through the exchange rate reform, although it had negative impact on the domestic food production sector and related small farmers. Further analysis on the contributions of technical changes in agriculture and non-agriculture supports the push-pull effect concept in both sectors in this paper.