Trends and Determinants of Tire Export Income in Sri Lanka: An Econometric Analysis

Abstract

The tire industry in Sri Lanka shows excellent potential for the development of the economy with a substantial contribution to export income. Therefore, the main objective of this study is to examine the determinants and impact of tire export income in Sri Lanka. Secondary data was obtained from Central Bank in Sri Lanka and United Nations Statistical Office covering the period from 1989 to 2018. Unit root test, simple and multiple regression Co integration analysis, Error Correction Model, and Granger Causality tests were used for analysis. The study found a long-run causality between GDP, Global market price for rubber, Exchange Rate, and Inflation with tire export income. The causality test suggested a causality running from export income to GDP. However, there is no causality running between GDP and export income. According to regression results, GDP, inflation, and exchange rate significantly determined the tire export income in Sri Lanka. Further, inflation and exchange rates were negative, and the GDP was positively influenced by the tire export income. While Domestic and Global Market prices for rubber did not show a significant influence on the tire export income. Government should maintain favourable macroeconomic policies, especially monetary policies which enhance the stability of the economy.