Industrialization Experience in Sri Lanka

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Abstract
On the whole, this paper gives an analysis on the impact of globalization on Sri Lanka and further examines the industrialization experience in Sri Lanka following the market-oriented policy transformation instigated in 1977, while emphasizing on the establishment of trade Policies including Foreign-Direct-Investments (FDI). Moreover, this paper recognizes that policy alterations have positively played a key role in converting a primary-product-exporting economy to an economy which manufactures & exports value-added goods.

The paper discusses different phases of Government policy towards international trade & private investment in Sri Lanka since the independence in 1948, with the objective of emphasizing the positive impact of globalization on the Textile and Apparel (T&A) industry in Sri Lanka while acknowledging negative impacts and provide strategic alternatives to endure the height of globalization in the post-MFA/ATC era.

Furthermore, the paper acknowledges the dependence of the industry on trade flows instigated by globalization, through the identification of 46 per cent dominance of T&A exports in total exports in 2009. Capital flows and technological transfers provide another linkage between the said industry and globalization.

1.0 Introduction
As a member of the international trading community, Sri Lanka has been on the focal point of Globalization from the early days. Historical evidence suggests that, in the 15th century Arab traders made Colombo, the hub of their trading activities in the Indian Ocean. A century later, the Portuguese secured Colombo (1505-1658) and improved its significance as the most popular emporium in the East. Consequently, the Dutch came in to reign and further enhancements of Colombo’s significance were seen during the period (1658-1796). However, Colombo received the greatest impulsion for its rise to prominence in the Indian Ocean region under the British (1815-1948) with the extension of their dominion over the whole island. (De Silva, 2005, p.1-60)

At the time Sri Lanka gained independence from the British in 1948, Sri Lanka’s development indicators contrasted positively with those of other South Asian countries and most of the East and South-East Asian countries. According to UNCTAD (2004, p.3) Sri Lanka's economic performance outshined that in several of today's dynamic economies of East Asia till 1965.

The World Bank (1992, 1995a) confirms this by stating that even as late as 1965; the per capita income of Sri Lanka was higher than those of Indonesia, the Republic of Korea & Thailand.

Consequently, Sri Lanka’s economic performance lagged behind while the East Asian economies picked up the pace fuelled mainly by high growth in private domestic investments and FDIs.

2.0 Impact of Globalization in Sri Lanka - Evolution of Government Policy on Trade Two discrete phases of Government policy towards International Trade & private investment can be recognized since Sri Lanka gained independence from the British in 1948. These explain much of the sluggish growth and low structural transformation in the country.

2.1 First phase – Import Substitution
As discussed by Athukorala and Jayasuriya (2004, p. 3), the ‘Balance of Payment’ dilemma and the change in the political leadership in the country, escorted to the implementation of a state directed import substitution approach after Sri Lanka gained independence from the British in 1948.

According to UNCTAD (2004, p. 6), the public sector captivated and controlled an increasing share of the country's resources during the first phase from 1948 to 1977. Investment approvals and licensing and related formalities were rigid and were common. The resulting business environment was very much unfavorable for private investments including FDI. By one approximation carried out by the World Bank (1995b, p. 4), as much as 70% of Sri Lanka’s economy was in the public domain in 1973.

2.2. Second phase – Trade...
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