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

International Trade Journal, Vol. 18, No. 4, pp. 269-301, 2004

Posted: 18 Dec 2004

See all articles by Dakshina G. De Silva

Dakshina G. De Silva

Department of Economics, Lancaster University Management School

Zhen Zhu

University of Central Oklahoma - Department of Economics

Abstract

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

Keywords: Exchange Rate, Trade Balance, GDP Growth, VAR, ECM, Sri Lanka

JEL Classification: F14, F31, F43

Suggested Citation

De Silva, Dakshina G. and Zhu, Zhen, Sri Lanka's Experiment with Devaluation: VAR and Ecm Analysis of the Exchange Rate Effects on Trade Balance and GDP. International Trade Journal, Vol. 18, No. 4, pp. 269-301, 2004. Available at SSRN: https://ssrn.com/abstract=633382

Dakshina G. De Silva (Contact Author)

Department of Economics, Lancaster University Management School ( email )

Lancaster LA1 4YX
United Kingdom

Zhen Zhu

University of Central Oklahoma - Department of Economics ( email )

Edmond, OK 73034
United States

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