Export market diversification and export performance of Sri Lanka: a cointegration analysis

Abstract

This paper aims to investigate the existence of geographical export market diversification and its relations with export performance of Sri Lanka. The paper identifies the existence of geographical export market diversification by using Herfindahl Index, and empirically investigates the long run and the short run relationship between market diversification and export performance. The time series data extracted from the World Bank database are used to construct Index and appropriate variables. Johansen's co-integration analysis was performed to investigate the relationships between export market diversification over a period 1999 to 2015. The trend of the Herfindhal Index reveals that market diversification exists in the structure of export patterns. The findings derived from the analyses further suggest that the existence of geographical export market diversification of Sri Lanka has long run relationship with export performance. Contribution/ Originality The major contribution of this paper is that it classifies export market share to reveal structural changes among export partnering countries of Sri Lanka and detects the degree of geographical export market diversification. Furthermore, the findings of this paper add new knowledge to the existing literature in Sri Lankan perspective, and this would be useful to trigger off sound policies to come out from the trade deficit trap.