Exchange Rate Volatility on Exports: A Comparative Study of Sri Lanka and Bangladesh

This study examines the impact of exchange rate volatility on exports in Sri Lanka and Bangladesh using quarterly data from 2000Q1 to 2023Q4. The Autoregressive Distributed Lag (ARDL) model is used to examine both long-run and short-run relationships, and exchange rate volatility is calculated using the moving average standard deviation method. Data were collected from the Central Bank of Sri Lanka, Bangladesh Bank, and the International Monetary Fund. The findings show that in the long run, higher exchange rate volatility has a significant negative effect on exports in Sri Lanka. In Bangladesh, the effect is also negative but not statistically significant. Real foreign income positively and significantly influences exports in both countries, emphasizing its role in driving export. In Sri Lanka, the real effective exchange rate has a negative and significant effect on exports, while relative prices show a positive and significant impact. In Bangladesh, relative prices also have a positive effect, but it is not significant. In the short run, exchange rate volatility significantly reduces exports in Bangladesh. Real foreign income continues to have a positive and significant effect on exports in both countries. Relative prices increase exports in Sri Lanka but reduce them in Bangladesh. In Bangladesh, the real effective exchange rate positively affects 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.