Rethinking Sri Lanka's industrialisation strategy: Achievements, lost opportunities and prospects

Abstract

The purpose of this paper is to contribute to the contemporary policy debate in Sri Lanka on industrialization strategy by analysing policy regime shifts and their outcome in terms of export performance, growth and employment during the post-independence era. The analysis is guided by the received body of knowledge relating to the challenges faced by a small economy that takes world prices as given and is unable to affect world demand and supply in designing national industrialisation strategy in this era of economic globalization. The findings demonstrates that the backlash against liberalization reforms in the contemporary Sri Lankan policy debate is largely based on ideological predilections rather factual analysis. The comparative analysis of Sri Lanka's industrialization experience during the state-led import-substitution era and that of the post-reform era (in particular during the first two decades) makes a strong case for reconsidering the merit of the emerging emphasis on combining import substitution with export orientation with a sector specific focus. Selective policies to promote import substitution essentially impose a "?tax' on export producers.

Key words: industrialization, trade policy, foreign direct investment, economic globalisation JEL codes: O14 O24, O25, O53 Show more