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Increase in protectionism and its impact on Sri Lanka's performance in global markets

  • Kaminski, Bartlomiej
  • Ng, Francis
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    Sri Lanka's external performance defies global trends on two counts. First, the level of openness as measured by the ratio of trade in goods and services, after a strong increase in 1987-95 and stagnation in 1996-2004, sharply fell in 2005-10 to the levels experienced during the era of import substitution. Second, the share of clothing in manufactured exports has remained largely unchanged over the past 25 years. Had there been no economic growth, this would not have been puzzling. The paper argues that these unique features can be traced to (a) the duality of Sri Lanka's economic regime -- the legacy of unfinished structural reforms of a socialist economic regime -- and (b) high and growing protectionism in the 2000s. Sri Lanka's experience shows that the lack of stability in trade policy combined with recently expanding protectionism and the state's micromanagement of investment does not create an institutional/policy setting conducive to rapidly evolving composition of exports and their fast growth. The practice of dealing with weaknesses in trade policies and the business environment through granting exemptions to various activities deemed desirable by the authorities only exacerbates distortions and creates more fertile ground for rent seeking. Without a radical overhaul of the current policy framework shaping interaction of Sri Lankan businesses with global markets, economic growth may be reduced, if not reversed.

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    Paper provided by The World Bank in its series Policy Research Working Paper Series with number 6512.

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    Date of creation: 01 Jun 2013
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    Handle: RePEc:wbk:wbrwps:6512
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    1. Prema-chandra Athukorala & Sisira Jayasuriya, 2004. "Complementarity of Trade and FDI Liberalization in Industrial Growth: Lessons from Sri Lanka," ASARC Working Papers 2004-10, The Australian National University, Australia South Asia Research Centre.
    2. Gereffi, Gary, 1999. "International trade and industrial upgrading in the apparel commodity chain," Journal of International Economics, Elsevier, vol. 48(1), pages 37-70, June.
    3. Thomas Farole & Gokhan Akinci, 2011. "Special Economic Zones : Progress, Emerging Challenges, and Future Directions," World Bank Publications, The World Bank, number 2341, December.
    4. Gary Hufbauer, 1970. "The Impact of National Characteristics & Technology on the Commodity Composition of Trade in Manufactured Goods," NBER Chapters, in: The Technology Factor in International Trade, pages 145-231 National Bureau of Economic Research, Inc.
    5. Kaminski, Bartlomiej & Ng, Francis, 2005. "Production disintegration and integration of Central Europe into global markets," International Review of Economics & Finance, Elsevier, vol. 14(3), pages 377-390.
    6. Dani Rodrik, 2007. "Introductiion to One Economics, Many Recipes: Globalization, Institutions, and Economic Growth
      [One Economics, Many Recipes: Globalization, Institutions, and Economic Growth]
      ," Introductory Chapters, Princeton University Press.
    7. Ng, Francis & Yeats, Alexander, 1999. "Production sharing in East Asia : who does what for whom, and why?," Policy Research Working Paper Series 2197, The World Bank.
    8. Gladys Lopez-Acevedo & Raymond Robertson, 2012. "Sewing Success? Employment, Wages, and Poverty following the End of the Multi-Fibre Arrangement," World Bank Publications, The World Bank, number 13137, December.
    9. Garry Pursell & F.M. Ziaul Ahsan, 2011. "Sri Lanka's Trade Policies: Back to Protectionism," ASARC Working Papers 2011-03, The Australian National University, Australia South Asia Research Centre.
    10. Bair, Jennifer & Gereffi, Gary, 2001. "Local Clusters in Global Chains: The Causes and Consequences of Export Dynamism in Torreon's Blue Jeans Industry," World Development, Elsevier, vol. 29(11), pages 1885-1903, November.
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