Foreign Ownership, Technological Capabilities and Exports: Evidence from 205 Clothing Firms in Sri Lanka

Sri Lanka was the earliest South Asian economy to introduce economic reforms to attract export-oriented FDI. The rise of clothing production for export, apparently mainly driven by foreign firms, is regarded as a major outcome of the reforms. This paper seeks to examine a range of factors underlying firm-level export and technological performance. Econometric analysis (based on a large dataset of 205 clothing enterprises) indicates that foreign ownership, firm size, human capital, technological capabilities and geographical location are all positively associated with export shares. Furthermore, higher levels of technological capability are associated with larger firm size, university-level manpower and formal research and development. Improving the country's investment climate, facilitating the development of business services markets and upgrading SMEs as subcontractors to foreign firms are important policy lessons for developing economies