The Impact of Exchange Rate Volatility on Industrial Exports: A Case of Sri Lanka

Abstract

The developing world witnessed the exchange rate fluctuations enormously to instability and a lack of economic confidence over the years. The relationship between exchange volatility and industrial exports in Sri Lanka is a continuing matter in economic growth and development. Many developing countries are engaging in a wide range of cross-border transactions with developed and emerging economic countries. This situation has led countries to witness exchange rate fluctuations, and the unpredictability of exchange rates affects the export earnings. The relationship between exchange rate volatility and industrial exports in Sri Lanka is a continuing matter in economic growth and development. The aim of this study is to analyze the exchange rate volatility on industrial exports in Sri Lanka from 2001 to 2018. The motivation of this study is to investigate the relationship between exchange rate volatility in industrial export earnings in Sri Lanka after implementing floating exchange rate policy. The ARDL model is employed to examine this phenomenon and the study found a positive relationship between exchange rate volatility and industrial exports in Sri Lanka in the short run and long run.