For some people, exfoliative cheilitis is a symptom. For others, it is the disease. I have no doubt that some people develop this because of certain physical problems or deficiencies. Some people have eczema on their lips. Some people develop it while on Accutane. Some people develop it because they have immune system problems. I've read that people who are on the AIDS cocktail are prone to this.
I personally think mine is mostly mental, but also physical because I caused it by biting my lips all the time as a result of stress. Now it's a little bit of both, because my lips are trying to heal but I freak out about it which makes it worse because I am overly conscious of my lips and keep prodding them and so on. I do believe I cured it once before by simply dealing with it instead of trying to cure it, but other people are going to have different reactions, depending on what is the cause.