Complementarity of trade and FDI liberalization in industrial growth: lessons from Sri Lanka

Author name: 
Prema-chandra Athukorala
Sisira Jayasuriya

This paper examines industrialisation experience in Sri Lanka following themarket-oriented policy reforms initiated in 1977, with emphasis on the complementarity of trade and foreign direct investment (FDI) policies in shaping the reform outcome. It isfound that the reformshelped to transform a primary product exporting economy into one in which manufactures dominate exports. Improved performance of domesticmanufacturing through greater export orientation saw improvement in output and total factor productivity growth, and employment generation. The Sri Lankan experience highlights the complementary role of investment liberalisation for exploiting thepotential gains from trade liberalisation.This industrialisation outcomeis particularlyimpressive given that it occurred during a period of persistentcivil strife and macroeconomic instability.

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