Abstract:
This study aims to find out the relationship between the trends of various exchange
rates and the trend of imports on Sri Lankan empirical context. The quantitative
method is used by using the time series data in this study. The annual time series data
used in this study are collected from the annual report of Central Bank of Sri Lanka for
the time periods from year 1950 to year 2017. The multiple regression model is used to
find out the impact of the independent variables such as Indian Rupees, Japanese Yen,
Pound Sterling, and US Dollar on the dependent variable such as imports of Sri
Lanka. The Granger Causality Test is used to find out the causal relationship among
all the variables. The Johansen Co-Integration Test is used to find out long run
equilibrium relationship among the variables. Pound Sterling of United Kingdom
and Dollar of United Statesare positively impacts on the Imports of Sri Lanka. Indian
Rupees and Japanese Yen are inversely associated with the imports. According to the
Granger Causality Test, one way causal relationship is found between the currencies
such as Indian Rupees, Japanese Yen, Pound Sterling, and US Dollar and the imports.
The results of Johansen Co-integration Test vividly ensure the long run equilibrium
relationship of the variables and the movement of all the variables together in the long
run equilibrium. Paradox is recommended to be named as Import Paradox of Pound-
Dollar. The structural breakpoint is found in year 2009 which is the year of cease-fire
in Sri Lanka.
