On ‘the political economy of stabilization’

Joan Nelson (1984) includes Sri Lanka in the period 1977–1982 in a series of case studies of the factors affecting the political acceptability of stabilization and adjustment programs. This is misleading because, unlike the other countries dealt with, Sri Lanka was not faced with an economic crisis when it accepted large multilateral loans under policy conditionality. In fact, the economic policies pursued in Sri Lanka after 1977 reflect the interests and political program of the domestic capitalist class. The existence of such a class introduces dimensions to the analysis of the politics of adjustment not dealt with in Nelson's framework.     

EXPORT‐LED GROWTH HYPOTHESIS: FURTHER ECONOMETRIC EVIDENCE FROM SOUTH ASIA

This paper examines the export‐led growth (ELG) hypothesis for five South Asian countries through cointegration and multivariate Granger causality tests. Strong support for a long‐run relationship among exports, imports, and real output for all the countries except Sri Lanka were found. Feedback effects between exports and GDP for Bangladesh and Nepal and unidirectional causality from exports to output in the case of Pakistan were found. No causality between these variables was found for Sri Lanka and India, although for India GDP and exports did induce imports. A feedback effect between imports and GDP was also documented for Pakistan, Bangladesh, and Nepal, as well as unidirectional causality from imports to output growth for Sri Lanka. These and other findings are discussed from the standpoint of the export‐led growth hypothesis.     

Sustainability of the fiscal imbalance and public debt under fiscal policy asymmetries in Sri Lanka

This paper investigates the sustainability of Sri Lanka’s fiscal imbalance and public debt. To test for sustainability of the fiscal imbalance, the study applies a symmetric ARDL (autoregressive distributive lag) technique to estimate a government intertemporal budget constraint. And to test for sustainability of public debt, it applies an asymmetric ARDL technique to estimate a fiscal reaction function, which allows for differential responses in the primary budget balance depending on whether shocks to regressors are positive or negative. Annual data for the period 1961–2018 are used in the estimations. The results indicate that Sri Lanka’s fiscal management is inconsistent with strong form sustainability, which requires that expenditures not grow faster than revenues. However, estimation of the fiscal reaction function finds robust evidence for fiscal policy asymmetries. Evidence emerges that Sri Lanka’s fiscal policy stance is procyclical with strong stabilization tendencies in economic expansions that are not sustained in contractions. Against upsurges in the debt-to-GDP ratio, authorities are found to pursue fiscal consolidation, thus suggesting weak form sustainability.     

Differentials in urban-rural fertility in the countries of the ESCAP region

Fertility differentials between rural and urban populations are investigated using World Fertility Survey data for Bangladesh, Fiji, Indonesia, Malaysia, Nepal, Pakistan, the Philippines, the Republic of Korea, Sri Lanka, and Thailand. "The fertility measure used in this analysis is the number of children ever born to a woman. An attempt is made first to establish the differential in fertility levels between urban and rural areas after necessary control of the demographic factors..., and then the possible explanation of the differential is sought in terms of socio-economic variables such as education of the respondent, and occupation, work pattern, work status and place of work of the respondent as well as that of the husband." Data concerning the fertility differentials and the associated explanatory variables are presented in tables and charts. "The results tend to show that the countries of Asia are undergoing similar patterns of fertility transition as was experienced in the advanced countries. Perhaps one can graduate the countries in the transition scale as follows: Bangladesh, Indonesia, Nepal, Pakistan and Malaysia are in the initial stage; Fiji, the Philippines, the Republic of Korea, Sri Lanka and Thailand are in the middle stage of transition."     

Impediments to Promoting Backward Linkages from the Garment Industry in Sri Lanka

The slow growth of backward linkages from the garment industries (export-oriented) in developing countries and the policy merits of promoting these linkages have considerable contemporary relevance. Backward linkages are useful particularly for a garment industry to reduce the lead time and remain competitive in the international market. Local suppliers to the garment industry cannot function however unless conditions exist which allow them to be competitive. Furthermore, in a world where multinational garment-buying firms are dominant, a large import dependence in the garment industry does not necessarily imply that there are many opportunities to create local supplies and thereby create backward linkages. These factors are shown from the Sri Lankan attempts to promote backward linkages from the garment industry. It is argued that formation of backward linkages in the garment industry that operate in an open economy such as Sri Lanka is a natural outcome of industrial deepening and therefore will be time dependent. It is noted that even with less backward linkages, the garment industry in Sri Lanka has contributed significantly to foreign exchange earnings and employment creation in the country.     

The Economic Cost of the War in Sri Lanka

This paper discusses some of the conceptual and methodological problems associated with assessing the economic costs of civil wars and other violent social conflicts, and presents an evaluation of the costs of the (still ongoing) conflict in Sri Lanka. Our estimates suggest that the costs of conflict since 1983 may be at least equivalent to twice Sri Lanka's 1996 GDP.     

Branch expansion and banking efficiency in Sri Lanka’s post‐conflict era

This study assesses changes in the technical efficiency of commercial banks in Sri Lanka following the end of armed conflict in 2009. The weighted aggregate-efficiency technique, based on a group-wise heterogeneous subsampling bootstrap approach, is employed to compare efficiency levels during the periods 2007–2009 and 2010–2013. This technique allows for heterogeneity in environmental and regulatory conditions between the two periods while assuming homogeneity within each period. Our results reveal that the banking sector experienced a significant efficiency improvement post-conflict even with unprecedented branch expansion. The findings, therefore, controvert the mainstream view that bank efficiency declined with rapid industry expansion. Further, we conclude that geographical expansion of the banking sector is a viable and effective policy tool to achieve broad-based and inclusive growth for emerging economies like Sri Lanka, particularly in a period of post-conflict recovery.     

Anatomy of financial retardation in a less developed country: The case of Sri Lanka, 1951–1976

An attempt is made in this paper to analyse the experience of Sri Lanka during 1951–1976, particularly in relation to its financial sector development. It is shown that the interventionist regime held the key to the pace and pattern of the economy's development. Whether it was the skimpy growth of the financial system, the faltering progression of GNP, the precarious foreign exchange position, or the persistence of inflationary pressure, they were all traceable to the impact on the financial system of a particular set of policies pursued. The year 1977, however, marked a watershed in Sri Lanka's long quest for economic development. The Government began to unwind the entire paraphernalia of administered controls on consumption, investment and foreign exchange. Most of the price controls were removed, subsidies phased out and public corporations were allowed greater autonomy in their pricing and distribution policies. It is necessary to contrast this situation with what existed prior to 1977 in order to assess its impact on the real economy of Sri Lanka. Only then can the cost of financial retardation be measured.     

The government revenue and government expenditure nexus: empirical evidence from nine Asian countries

The nexus between government revenue and government expenditure has been an important topic in public economics. In this paper, we investigate evidence for cointegration and causality between government revenue and government expenditure for nine Asian countries. We use the recently developed bounds testing approach to cointegration and the conventional F-test to examine Granger causality. Our empirical results suggest that for three out of the nine countries government revenue and government expenditure are cointegrated. Our results on the direction of causation are mixed: (a) for Indonesia, Singapore, Sri Lanka in the short-run and for Nepal in both the short- and long-run we find support for the tax-and-spend hypothesis; (b) Indonesia and Sri Lanka are in conformity with the spend-and-tax hypothesis in the long-run; and (c) for other countries there is evidence of neutrality.     

High interest rates: a new conventional wisdom for development policy? some conclusions from Sri Lankan experience

The paper is concerned with the general proposition that ‘high’ interest rates paid to savers can contribute significantly to the long run development of LDCs, as well as to stabilization of their economies in the short run. By relating this general proposition to some simple theory about the behaviour of imperfect financial markets, as well as to specific institutional circumstances in Sri Lanka, it is demonstrated that there are important qualifications that have to be borne in mind. In particular, in the current institutional circumstances of Sri Lanka (which are closely replicated in other LDCs), the instinctive argument of the neoclassical economist that interest rates should reflect the scarcity price of capital is not a great deal of help to policy-makers.     

A World Bank Intervention in the Sri Lankan Welfare Sector: The National Development Trust Fund

In 1991 the World Bank moved to streamline the Sri Lankan welfare sector by funding a poverty alleviation project which promoted the role of non-government organization (NGOs) and decentralized government agencies and replaced traditional consumption-oriented transfers with an emphasis on household self-reliance through productive activity. The project's design was based on a model which depends for its success on key conditions—guaranteed political independence and a well-developed NGO sector—which did not exist in Sri Lanka in the early 1990s. Additional problems included management deficiencies and failure to provide key supports for production-related poverty reduction.     

The global economic crisis and the impact on children in Sri Lanka

By the 1970s, Sri Lanka had already achieved a high level of mass well-being, literacy and labour force skills, making it possible to mount a massive investment programme in the late 1970s. Measures taken in 1977 to open the economy emphasized foreign investment and expansion of production, export promotion and employment. Because structures and levels of outlays on essential social welfare were maintained and external resource flows increased, Sri Lanka's economic and health indicators over the 1970s show on balance an improvement in living conditions although pockets of disadvantaged households exist.     

Equity Risk Premium Puzzle: Evidence from Indonesia and Sri Lanka

This paper investigates the equity risk premium puzzle in the Indonesian and Sri Lankan stock markets in order to identify the relationship between the volatility of excess returns and the equity risk premium. The asymmetric impact of negative shocks on the equity risk premium is also examined using threshold and exponential GARCH-M models. We analyse data on the excess returns of the Indonesian and Sri Lankan stock markets from 2004 to 2013, and we find that the impact of the conditional volatility of excess returns on the equity risk premium is not significant in either country. Instead, we find an impact from negative return shocks on the equity risk premium only in Sri Lanka. Therefore, we conclude that investors are not compensated for the conditional volatility of the excess returns in these two markets, while Sri Lankan investors are compensated for the risk of negative shocks.     

Development and income distribution: A case study of Sri Lanka and Malaysia

This paper compares the pattern of change in the size-distribution of incomes in Sri Lanka and Malaysia and attempts to explain these changes. It also uses these case studies to illustrate some weaknesses in the ‘orthodox’ view, derived from cross-section analysis, of the relationship between economic development and income distribution in developing economies.     

A Case of Sticky Floors: Gender Wage Differentials in Thailand

Using 2004 Household Socio‐Economic Survey data for Thailand, we explore the gender wage differentials across the entire unconditional wage distribution and find a strong sticky floor effect. Glass ceilings, although observed along with sticky floors in the raw data and pooled regressions, disappear in the counterfactual decompositions, suggesting a strong sticky floor pattern in gender wage differentials in Thailand. Whereas the evidence for most European countries points to glass ceilings, our findings for Thailand are qualitatively similar to those from other South Asian and Southeast Asian countries for which evidence exists; namely, Singapore, the Philippines and Sri Lanka.     

Foreign ownership,technological capabilities and clothing exports in Sri Lanka

Drawing on recent developments in applied international trade and innovation and learning in developing countries, this paper examines the links between firm-level export performance, foreign ownership and the acquisition of technological capabilities in a sample of 205 clothing enterprises in Sri Lanka. Econometric analysis 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 in-house technological effort. Micro-level investigations are a complementary input to developing policies for promoting private sector competitiveness in outward-oriented developing countries.     

The real exchange rate,capital inflows and inflation: Sri Lanka 1970–1982

Zusammenfassung Realer Wechselkurs, Kapitalimporte und Inflation: Sri Lanka 1970–1982. - Der Aufsatz unterscheidet zwischen effektiven Kaufkraftparit?ten und realen Wechselkursen. Die Bedeutung der letzteren als ein diagnostisches Werkzeug wird hervorgehoben, indem der Kapitalverkehr einbezogen und das Salter-Modell auf eine offene Volkswirtschaft mit Zolltarifen ausgedehnt wird. Bei Anwendung des Modells auf Sri Lanka stellt sich heraus, da\ die Inflation der Jahre 1977–1982, die mit der unvermeidlichen Erh?hung des realen Wechselkurses infolge massiver Kapitalimporte verbunden war, aus der Erh?hung der Preise von nicht-handelbaren Gütern herrührte und nicht so sehr aus einer exzessiven Geldmengenausweitung. Der Autor meint, eine nicht-inflation?re und wirksame Absorption von sozial erwünschten Kapitalzuflüssen erfordere, da\ die notwendige Erh?hung des realen Wechselkurses durch eine Senkung der Z?lle - also der heimischen Preise handelbarer Güter- herbeizuführen ist und nicht durch eine Erh?hung der Preise nicht-handelbarer Güter oder durch nominale Wechselkursbewegungen. Eine Verringerung der Protektion würde auch den Kaufkraftparit?tenwechselkurs senken, was erforderlich ist, damit die Wettbewerbsf?higkeit auf den Exportm?rkten erhalten bleibt.

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Resumen El tipo de cambio real, importaciones de capital e inflación: Sri Lanka entre 1970 y 1982. - El trabajo distingue entre tipo de cambio real y tipo de cambio efectivo PPA y enfatiza la importancia de este último como instrumenta de diagnóstico integrando la cuenta de capital y extendiendo el modelo de Salter a la economía abierta distorsionada por aranceles. Se aplica el modelo a Sri Lanka resultando que la inflación entre 1977 y 1982, que acompa?ó al inevitable aumento del tipo de cambio real, a raíz de la importación masiva de capital, fue debida más bien al aumento de los precios nomínales de los bienes no comerciados que a la expansión monetaria excesiva. Se arguye que la absorción eficiente y no inflacionaria de importaciones de capital socialmente deseadas requiere que la revaluación necesaria del tipo de cambio sea producto de una reducción de aranceles, o sea, del precio nacional de los bienes comerciados, y no de aumentos en los precios de los bienes no comerciados o de movimientos nominales del tipo de cambio. Reducir la protección significaría también devaluar el tipo de cambio PPA necesario para mantener la competitividad de las exportaciones.

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Résumé Le taux de change réel, afflux des capitaux et inflation: Sri Lanka 1970–1982. — L’article distingue les taux de change PPA effectifs et réels et souligne l’importance du dernier taux comme instrument diagnostique en intégrant la balance des capitaux et étendant le modèle de Salter à une économie ouverte aux tarifs douaniers. L’auteur applique le modèle à Sri Lanka et trouve comme résultat que l’inflation en 1977–1982 qui accompagnait l’augmentation inévitable du taux de change réel incitée par des afflux massifs des capitaux était due à l’augmentation du prix monétare des biens non-commercés au lieu de l’expansion monétaire excessive. Il argue que l’absorption non-inflationniste et efficiente des afflux des capitaux qui sont désirables d’un point de vue social rend nécessaire la révaluation du taux de change réel qui devrait être accomplie par une réduction tarifaire et des restrictions quantitatives et ainsi par la réduction des prix locaux des biens commercés au lieu des augmentations des prix des biens non-commercés ou des mouvements en taux de change nominal. Une réduction de la protection dévaluerait le taux de change PPA ce qui est nécessaire pour maintenir la capacité concurrentielle des exportations.

     

The political economy of controlling transnationals: The pharmaceutical industry in Sri Lanka (1972–1976)

This paper analyses the experience of Sri Lanka in reforming the structure of production, importation and distribution of pharmaceuticals, a sector dominated by transnational companies. It traces the complex interplay of economic, political and ideological factors that affected the process of regulating transnationals and of establishing a State Pharmaceuticals Corporation, stressing the role of the medical profession in resisting reform and of political leadership in initiating and, later, retarding it. Sri Lanka's experience offers valuable lessons for understanding the transnational phenomenon in general, and the difficulties of reforming the pharmaceutical industry in particular: it also illustrates clearly the advantages that developing countries may gain from such reform.     

Development as liberation: Policy lessons from case studies

Four case studies are summarized in which oppressed people have successfully assumed control over their own destinies and development strategies. Lessons from experience are drawn, at the national and macro-economic level, from Guinea-Bissau where the popular liberation movement has grown into the national government without losing close contact with its constituency; from the Sarvodaya movement in Sri Lanka which has started as a modest development organization of poor people, based on indigenous social and cultural values, and which has grown into a popular movement of 1 million people (of 14 million total population) in some 2000 villages; from the SEWA (Self-Employed Women's Association) in Ahmedabad, India, where oppressed street vendors, artisans, junksmiths and garment-makers have founded their own bank (which now has 1000 shareholders and 10,000 depositors) to circumvent usurious lending practices and to gain access to capital at their own terms; and from a Quechua community in central Bolivia where handicrafts producers' cooperatives have successfully maintained self-reliance and cultural identity through conscious choice of appropriate technology at their own terms. Lessons on development as a form of liberation are drawn from the social praxis of each of these examples.     

Changing Sources of Household Income,Poverty, and Sectoral Inequality in Sri Lanka, 1990–2006

Comparing dynamic changes in household income and poverty among urban, rural, and estate sectors in Sri Lanka from 1990 to 2006, this study finds that a shift of household income away from farm to nonfarm sources is accompanied by a significant improvement in household income and reduction in poverty, particularly in the rural sector. Major contributing factors are the rise in returns to labor, in general, and educated labor, in particular, due to the development of the nonfarm labor market. Persistently low income among estate households can be explained primarily by the limited availability of nonfarm employment opportunities and the low education levels of working members.