AN EMPIRICAL ANALYSIS OF SUSTAINABILITY OF TRADE DEFICIT: EVIDENCE FROM SRI LANKA

Abstract

In this paper, the long-run relationship between Sri Lanka exports and
\nimports during the period 1950 to 2006 is examined using unit root tests and
\nco-integration techniques that allow for an endogenously determined
\nstructural break. The results failed to support the existence of a long-run
\nequilibrium between exports and imports in Sri Lanka. This finding
\nquestions the effectiveness of Sri Lanka’s current long-term macroeconomic
\npolicies and suggests that Sri Lanka is in violation of its international budget constraint.