Abstract
This chapter examines Sri Lanka’s experience with manufacturing exports expansion, placing emphasis on opportunities and policy priorities in a rapidly changing global context in which global production sharing has become the prime mover of cross-border production and trade. There is compelling evidence that liberalization reforms initiated in 1977 helped transform the classical export economy of Sri Lanka inherited from the colonial era into a one in which manufacturing plays a significant role. Had not political instability that adversely affected the investment climate during Sri Lanka’s long conflict taken place, export performance would have been much more impressive. In a context in which factors of production—capital, technology and marketing and managerial know-how—are increasingly mobile across national boundaries within production networks, the nature of the existing manufacturing base is not a prerequisite for export diversification. Trade-cum-investment policy reforms can set the stage for the emergence of exporting firms de novo. In sum, the findings make a strong case for redressing policy backsliding and continue with the market-oriented reforms agenda that was left incomplete in the late 1990s and set up institutional safeguards to avert further backsliding.
This chapter draws on Athukorala (2017a).
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Notes
- 1.
Other terms used in the recent international trade literature include international production fragmentation, intra-process trade, vertical specialization, slicing the value chain, and offshoring.
- 2.
For details on the data classification system, see Athukorala (2017b), Appendix 2.
- 3.
Unless otherwise stated, the data reported in the paper are from UN Comtrade database.
- 4.
On signing the investment agreement with the Greater Colombo Economic Commission in 1980, W.D. Douglas, a vice-president of Motorola stated: ‘Political stability is number one on our list wherever we go’ (quoted in Wijesinghe 1976).
- 5.
According to SLEDB (2015), these firms currently employ over 20,000 workers.
- 6.
This section draws on Athukorala and Ekanayake (2018).
- 7.
Under GSP, Sri Lanka is eligible for an average non-reciprocal preference margin of about 2.2% on clothing exports (the average GSP rate of 9.0% compared to an average Multi-Fiber Agreement tariff rate of 11.2%). In July 2005, Sri Lanka became eligible for additional tariff concessions under the newly introduced GSP + scheme, which offered duty-free access for 7,200 products (including most clothing items).
- 8.
The discussion here follows the three-way classification of apparel proposed by Abernathy et al. (1999): fashion products, basic products, and fashion-basic products. Fashion products are high-end products, such as dresses from Paris and Italian made suits, the demand for which is largely driven by social status and deep-rooted cultural values. These products are not typically imported from developing countries. Basic apparel products remain in a retailer’s or a manufacturer’s collection for many seasons, such as men’s shirts, trousers, and underwear. Fashion-basic products are variants on basic products that contain some fashion element (such as stone-washed jeans, pants with pleats or trim, and fashion lingerie and intimate wear).
- 9.
Based on an interview with a Sri Lankan firm that has a large branch plant in Bangladesh. See also Savachenko and Acevedo (2010).
- 10.
According to the data on number of strikes and lost man days reported in Department of Labor (2010).
- 11.
Young women from the rural areas make up approximately 85% of all workers in the garment industry.
- 12.
Total investment, rather than foreign investment, better capture the impact of foreign-invested enterprises on export performance because there has been a clear shift in the ownership structure of these firms from full foreign ownership to joint venture (with minority ownership in most cases).
- 13.
It is preferable to separate the other manufacturing exports into GPN products and non-GPN products, but disaggregated price (unit value) data are not available.
- 14.
The author is grateful to S.D. Nilanka for permitting him to use some of the data series from the database she constructed for the Masters research essay (Nilanka 2016).
- 15.
The log-linear specification of the model was tested against the simple liner specification using the standard functional form choice tests (Pesaran and Pesaran 2009, Sect. 11.9). None of these tests favoured one over the other. The results are reported for the log-linear specification because it has the added advantage that the estimated coefficients can be directly interpreted as elasticities.
- 16.
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Acknowledgements
The author is grateful to S. D. Nilanka for permitting him to use some of the data series from the database she constructed for the master’s research essay.
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Athukorala, Pc. (2019). Export Expansion in a Changing Global Order: Challenging Times for Post-conflict Sri Lanka. In: Weerakoon, D., Jayasuriya, S. (eds) Managing Domestic and International Challenges and Opportunities in Post-conflict Development . South Asia Economic and Policy Studies. Springer, Singapore. https://doi.org/10.1007/978-981-13-1864-1_9
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