Abstract:
This study investigates the impact of exchange rate volatility on exports in Sri Lanka
and Bangladesh using quarterly data from the first quarter of 2000 to the fourth quarter
of 2023. The Autoregressive distributed lag (ARDL) bounds testing approach is applied
to examine both long-run and short-run relationships between exchange rate volatility
and exports. The moving average standard deviation method is employed to calculate
exchange rate volatility. Data for this study were sourced from CBSL, Bangladesh
Bank and the IMF. The analysis confirms that in the long-run, exchange rate volatility
significantly reduces exports in Sri Lanka, while in Bangladesh the effect is negative
but statistically insignificant. Conversely, Real foreign income positively influences
exports in both countries, highlighting its role in driving exports. In Sri Lanka, the real
effective exchange rate significantly lowers exports, while relative prices also have a
positive but insignificant. In the case of Bangladesh, relative prices also have a positive
but insignificant. In the short run, exchange rate volatility significantly reduces exports
in Bangladesh, while real foreign income continues to positively affect exports in both
countries. Moreover, the relative price positively and significantly impacts exports in
Sri Lanka, while for Bangladesh has negative impact. Further, in Bangladesh, the real
effective exchange rate significantly and positively affects on exports, suggest exchange
rate depreciation negatively impacts exports in the short-run. The results indicate that
the models used are robust, reliable and stable over the study period. These findings
suggest some policy implications for effectively managing the exchange rate system
and sustainably promoting exports of both Sri Lanka and Bangladesh.
