Analysis of balance of trade: Sri Lankan context

Abstract

International trade among the countries are motivated by theories and governments all over the world due to the self-insufficiency of producing goods and services. The aim of this study is to analyze the balance of trade and its relationship with current account of balance of payment of Sri Lanka. For this purpose, data from various Annual Reports of Central Bank of Sri Lanka were collected for a sample period of ten years from 2008 to 2017. Trend analysis is used as the analytical technique of this study. The finding of this study shows that the annual trade deficit of Sri Lanka is between 9 and 15 percent of its annual GDP during the period of 2008-20017. More than one fourth of all exports of Sri Lanka is to United States of America where as more than 80 percent of exports are dominated by India, China, Middle East, Asia-other and European Union to Sri Lanka. During the last decade, Sri Lanka was experiencing continuous trade deficit, which in turn depends on the behavioral pattern of exports and imports of Sri Lanka. The finding of this study further concluded that the deficit of current account balance is less than that of trade balance in Sri Lanka and as an average, the trade account balance is more than 400 times the current account balance during the last ten years and in 2009 it was 1,480 times.