Impact of Exchange Rate on Export of Coconut Products from Sri Lanka

The specific objective of the study is to develop a multi-market model for the analysis of alternative policy options to increase exports of coconut products from Sri Lanka. Secondary data on the production and exports of coconut products are used. Simulations indicate that depreciation of the rupee exchange rate has a significant impact on export prices, volume of exports and income of industry stakeholders, but there is no significant impact on the producer prices or producer incomes, and supply of coconut products. Simulations show that export prices of coconut products declined for the rupee exchange rate depreciations in real terms. But in nominal terms, the export prices increased to cause an increase in the exporting firms’ income and government tax revenues, and a modest increase in the industry income. Depreciation of the rupee could raise the income of exporters and the government tax revenue, which could be used for investing in development of new technology or factory modernization subsidy schemes. Increased export prices can also boost processing of coconuts and encourage firms to export more coconut products. But the depreciation of the rupee has larger ramifications on the economy as a whole, thus it is not a viable policy option to choose for the long run.