International Journal of Research and Innovation in Social Science (IJRISS) | Volume VI, Issue IV, April 2022 | ISSN 2454–6186

The Export Performance of the Sri Lankan Tea: An Econometric Analysis

W. A. De Silva¹, N. S. Cooray²

¹Department of Decision Sciences, Faculty of Management Studies & Commerce, University of Sri Jayewardenepura, Colombo, Sri Lanka

²Graduate School of International Relations (GSIR), International University of Japan, 777 Kokusai-Cho, Minami Uonuma-Shi, Niigata 949-7277, Japan

Abstract – Sri Lanka is the fourth-largest tea producer and the world’s third-biggest tea exporter. It is vital to investigate why Sri Lanka lost her second place as an exporter of tea and how she can regain this status. Current research fills the literature gap by exploring the tea export industry. The current research uses time-series data from 1989 to 2020, and the time-series properties were evaluated using the ADF unit root test. The Autoregressive Distributed Lag (ARDL) Model looked at the long-run and short-run relationship between variables. The ARDL bound test showed that tea export is cointegrated with the other three variables (tea production, real exchange rates, and foreign exchange earnings). When considered, the foreign income has a substantial long-run and short-run influence on tea exports, whereas real exchange rates suggest only significant short-run effects. Total tea production serves as a supply constraint and has a significant long-run effect, while one-period lag tea production has a significant short-run impact. This study recommends that policymakers ensure an export quality tea production to acquire a place before on the global export market.

Keywords: ARDL Approach, Foreign Income, Real Exchange Rates, Tea Export, Trade Models

I. INTRODUCTION

Sri Lankan tea or “Ceylon tea” is renowned worldwide for its flavor and fragrance. Sri Lanka currently ranks as the fourth largest tea producer and the world’s third-largest exporter of tea (T.E.A., Sri Lanka, 2021). Tea is one of Sri Lanka’s primary export agricultural products, contributing 0.7 percent to the country’s GDP (6.9 percent to the agricultural component of GDP) (C. B. S. L., 2019). India, Sri Lanka, China, and Kenya contribute more than 75 percent to global production and 71 percent to global exports. Vietnam and Indonesia also make a significant contribution to development and export. (Annual Report, Tea Board of Sri Lanka, 2018). Given the weakening trends in the role of Sri Lanka, one might wonder why the tea export industry has lost its second position and is now ranked third in the global tea export market.
Much research on the market for Sri Lankan black tea has been carried out so far. (Karunasena (1988), Weerahewa (1996), Ganewatta et al., (2005)) etc…). The tea production market in Sri Lanka was modeled as part of an economic model of the economy of Sri Lanka by Karunasena (1988). Weerahewa (1996) (as in Ganewatta et al., (2005)) developed an overall tea model considering Sri Lanka’s supply and demand of tea individually and estimated tea demand for the United States, Canada, the United Kingdom, and other countries by modeling as derived demand. Bogahawatte (1989) created an econometric model to reflect the country’s household and export demand for tea production and the projected elasticity of Sri Lankan tea export demand. The