EVALUATING THE IMPACT OF BILATERAL TRADE AGREEMENTS ON SRI LANKA'S EXPORT PERFORMANCE: GRAVITY MODEL

Abstract

Export is an important indicator used to assess the economic state of a nation. Sri Lanka has started a few trade policy reforms aimed at supporting the export industry. Sri Lanka's contribution to global exports is still a very small percentage, nonetheless. It was important to determine how bilateral trade agreements affected export flows between Sri Lanka and its trading partners given the importance of exports in the economy. Thus, using the gravity model of trade, this research investigates the determinants influencing Sri Lanka's exports. The panel dataset used ranged from 2012 to 2021. The results suggest that Sri Lanka’s GDP and Sri Lanka’s trading partner’s GDP had a positive and statistically significant effect on Sri Lanka’s export performance. The geographical distance between the two countries and Sri Lanka’s GDP per capita had a negative and statistically significant effect on export performance in Sri Lanka. The study further showed that Sri Lanka's export performance significantly improved once trade agreements were formed. These findings have significance for the creation of trade policies to make sure Sri Lanka's export potential is utilized to boost economic growth.