Abstract:
The economic liberation in 1977 resulted in drastic
changes in many aspects of Sri Lanka. Considering about 1978-
2015, the country yearly import demand represents over 30%
share of the gross domestic product (GDP) except 1984, 2009,
2010, 2013–2015. Investigations and the studies on a countries’
imports are surprisingly overlooked as there are several studies
being carried out focusing only the aggregated export volume
concerning the exchange rate volatility. The monthly data of Sri
Lanka imports, import categories and monthly US Dollar (USD)
volatility from January 2007-December 2016 were used for the
analysis. This study tries to learn the impact of US Dollar Index
(USDX) volatility on import demand of Sri Lanka. The
Autoregressive Distributed Lag (ARDL) Approach is employed to
learn long-term and short-term cointegration among the
underlying variables. There exists a 95% statistically significant
short-run relationship and it is identified that the import
categories, Consumer Goods (CG), Intermediate Goods (IG),
Investment Goods (INV), Unclassified Items (UI), None-Oil
Imports (NO) have a speed of adjustment to the equilibrium (SAE)
in the long-run of 17%, 36%, 23%, 23%, 25% respectively. The
total imports reveal that the disequilibrium conditions will be
resolved by 27% within a period of one month that is shocked due
to the USDX volatility. Knowledge of the relationship between
USDX fluctuation, exchange rate volatility and import volume will
support to pursuit for a beneficial trade and prevent or be
prepared for a much more stable situation within Sri Lanka.
