Outward-oriented Policy Reforms and Industrialisation

This article examines Sri Lanka's industrialisation experience following the policy reforms initiated in 1977, with a view to informing the contemporary debate on the role of outward-oriented trade and investment policy in industrialisation in developing countries. There is strong evidence that improved performance of domestic manufacturing through greater export orientation has brought about significant improvement in output and total factor productivity growth, employment generation and terms of trade gains. The Sri Lankan experience also highlights the complementary role of investment liberalisation for ex-ploiting the potential gains from trade liberalisation. The reform outcome is particularly impressive given that it occurred during a period of persistent civil strife and macro-economic instability. Thus, this article, makes a strong case for firm commitment to an export-led growth strategy as the main pillar of national development policy while guarding against possible policy back-sliding emanating from the new-found enthusiasm for state activism.