An econometric model of the Sri Lankan economy

Perera, Nelson

doi:10.1007/978-94-011-1306-9_3

Cited by 2 publications

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“…Athukorala and Huynh concluded that export shocks destabilize the economy and have a negative impact on economic growth. Perera (1994) examined the impact of exchange rate devaluation on the Sri Lankan economy. In his model, exports and imports contribute to government revenue through taxes and levies.…”

Section: Introductionmentioning

confidence: 99%

“…Perera found that exchange rate devaluation does not improve the external trade balance. In a model that shares important features of Perera's (1994) model, Cooray (1996 also found that currency depreciation does not improve the external balance of the country. Rankaduwa et al (1995Rankaduwa et al ( , 1999 evaluated the macroeconomic impact of exchange rate devaluation, terms of trade deterioration and changes in world income.…”

Section: Introductionmentioning

confidence: 99%

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Modelling Trade Sector and Trade Shocks in a Small Open Economy

Jayawickrama

2009

South Asia Economic Journal

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The article examines the impact of external trade shocks on the economy of Sri Lanka, a small and open developing economy with high external trade intensity. Given a variety of specifications, we favour estimating both export demand and supply functions and an import demand function. Export demand depends on own price, world export prices and world income whereas export supply depends on own price, input prices and production capacity. Import demand is dependent on income and the relative price. Combining the trade sector with the rest of the economy, the article performs simulation experiments on external trade shocks. Results reveal that an increase in import prices has a significant impact on nominal variables and improves the current account of the balance of payments. An increase in world income has a highly persistent positive impact on the current account. Further, as these trade shocks affect the nominal sector of the economy greatly, measures should be taken to cushion any associated destabilizing impact on the economy. The results also imply that export sector businesses should have the flexibility to vary the production capacity in the face of such shocks.

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Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%