Outward‐oriented Policy Reforms and Industrialisation in Sri Lanka

This paper examines the industrialisation experience in Sri Lanka following the outward‐oriented policy reforms initiated in 1977. The reforms helped transform a primary product exporting economy into one in which manufactures dominate exports. The improved performance of the economy is seen in significant terms of trade gains, improvement in output growth, and employment generation, with a notable shift in labour absorption in favour of workers belonging to low‐income families. Were it not for the civil strife and inconsistent macroeconomic policies that existed during much of the post‐liberalisation period, the economy would have performed even better than it did. The experience over the past two decades makes a strong case for a firm commitment to an export‐led growth strategy while guarding against possible policy backsliding emanating from the newfound enthusiasm for state activism.