AN INVESTIGATION OF FACTORS AFFECTING THE BALANCE OF TRADE IN SRI LANKA
DOI:
https://doi.org/10.31357/sljbe.v13.7897Abstract
This study investigates the determinants affecting Sri Lanka's trade balance (TB) using time series data from 1990 to 2020. It explores key macroeconomic variables, including inflation (INF), foreign direct investment (FDI), gross domestic product (GDP), exchange rate (ER), tariffs (TFF), and broad money (BM), employing techniques such as the ADF unit root test, ARDL approach, CUSUM plot test, and long-run test. The results reveal that, in the long run, tariffs positively influence the trade balance, while inflation, GDP, and the exchange rate have a negative impact. In the short run, only the exchange rate shows a significant effect. These findings highlight the crucial role of macroeconomic factors in shaping Sri Lanka’s trade balance, offering valuable insights for policymakers to develop strategies that could improve the country's economic stability.