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Exchange rate movements' effect on Sri Lanka-China trade

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Author Info

  • Kanchana Senanayake Amarasingha Appuhamilage
  • Ahmed Abdulhusain Ali Alhayky

Abstract

Purpose – The purpose of this paper is to examine empirically the effects of exchange rate movements on trade performance with reference to the Sri Lanka-China trade relationship over the quarterly period from 1993 to 2007. Design/methodology/approach – This paper tests this condition for the trade between Sri Lanka and China in two steps. First, it investigates the exchange rate movements on Sri Lanka's aggregate exports and imports between China using selected variables such as the real bilateral exchange rate change, the change in income and the exchange rate volatility. Second, this study constructs a panel regression model using Sri Lanka's sectoral exports and imports between China and tests whether exchange rate movements have detrimental effects on sectoral trade. Findings – The main finding is that bilateral exchange rate changes and exchange rate volatility do play an active role on trade, while income growth changes have less influence in determining the total exports and imports between two countries. The analysis of data shows that changes in real bilateral exchange rate, income and exchange rate volatility are playing a major role in determining sectoral exports and imports between Sri Lanka and China. Therefore, the findings suggest that the movements of exchange rate between these two countries do have significant effects on total trade as well as sectoral trade between Sri Lanka and China.

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Bibliographic Info

Article provided by Emerald Group Publishing in its journal Journal of Chinese Economic and Foreign Trade Studies.

Volume (Year): 3 (2010)
Issue (Month): 3 (December)
Pages: 254-267

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Handle: RePEc:eme:ceftpp:v:3:y:2010:i:3:p:254-267

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Related research

Keywords: China; Exchange rates; Exports; Imports; Sri Lanka; Trade;

References

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  1. Franke, Gunter, 1991. "Exchange rate volatility and international trading strategy," Journal of International Money and Finance, Elsevier, vol. 10(2), pages 292-307, June.
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  11. McKenzie, Michael D, 1999. " The Impact of Exchange Rate Volatility on International Trade Flows," Journal of Economic Surveys, Wiley Blackwell, vol. 13(1), pages 71-106, February.
  12. McKenzie, Michael D. & Brooks, Robert D., 1997. "The impact of exchange rate volatility on German-US trade flows," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 7(1), pages 73-87, April.
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