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.

Document type: Working paper
Publisher: The World Bank
Place of Publication: Washington, D.C.
Date: 2013
Version: Secondary publication
Date Deposited: 13 December 2015
Number of Pages: 42
Faculties / Institutes: Miscellaneous > Individual person
DDC-classification: Economics
Controlled Subjects: Sri Lanka, Weltmarkt, Protektionismus
Uncontrolled Keywords: Sri Lanka, Weltmarkt, Protektionismus / Sri Lanka, Global Market, Protectionism
Subject (classification): Economics
Countries/Regions: Sri Lanka
Additional Information: © World Bank. License: CC BY 3.0 Unported
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