Effects of non-tariff measures on tea exports from Sri Lanka

Abstract

This study employed the gravity model of trade to examine the effects of non-tariff measures (NTMs) on Sri Lankan tea exports. The study used a panel data set including bilateral exports retrieved from Sri Lanka and its ten major tea export destinations from 2010 to 2019. The frequency of NTMs on Sri Lankan value of tea exports shows an increasing trend. The gravity model estimations show that except for tariff, the coefficients of all other gravity variables are statistically significant and aligned with theoretical justifications. The magnitude of the gross domestic product of Sri Lanka and importer countries and the presence of colonial links positively act on tea exports from Sri Lanka, while the distance between capital cities of trading partners and NTMs lower the exports. More specifically, imposing an additional NTM diminishes the value of tea exports by 48%. Furthermore, the NTMs have a 66% tariff equivalent effect. Hence, Sri Lanka's best prospects for profiting from tea exports depend on altering NTM policies, which are just as significant as other trade barriers.