Trade Policy Reforms and Industrial Adjustment in Sri Lanka

The structure of the paper is as follows. In the next section we trace the evolution of trade and industry policy in Sri Lanka since independence, followed by a discussion on the key elements of trade and investment policy reforms initiated in 1977. We then examine the industrialisation experience since 1977 in historical context, placing emphasis on aspects such as patterns of industrial growth, export orientation, and factor productivity growth. This is followed by an in-depth analysis of the response of foreign investors to the significant trade-cum-investment liberalisation reforms and the pivotal role played by export-oriented foreign direct investment (EOFDI) in transforming a classical primary commodity-dependent economy into a 'new exporting country' (NEC). The final section summarises the main findings. A key theme running through the paper is the importance of the concomitant liberalisation of both trade and investment policy regimes in determining outcome of liberalisation reforms in small trade-dependent countries like Sri Lanka.