Jayatilleke S. Bandara

Can Trade Liberalization Have Environmental Benefits in Developing Country Agriculture? A Sri Lankan Case Study

Abstract In an economy dominated by agriculture, trade policy reforms and associated changes may induce substantial reallocation of land between more and less erosive uses. However, the direction and magnitude of such a shift is difficult to predict due to the presence of existing policy distortions and of world market power in agricultural exports; moreover, changes occurring within agriculture may have economy-wide welfare effects through markets for factors and commodities. We use an applied general equilibrium model to evaluate and quantify the likely impacts of an across-the-board tariff reduction in Sri Lanka. In a related analysis, we examine the economic and environmental implications of technical progress in an important export sector, tea. We find that both types of change increase the demand for land in tea, a relatively less erosive sector, and thus have environmental as well as economic benefits for the Sri Lankan economy.

Trade Policy Reforms in South Asia

M EMBERS of the South Asian Association for Regional Co-operation (SAARC — India, Pakistan, Bangladesh, Sri Lanka, Maldives, Nepal and Bhutan) have in recent years worked hard to reform their trade regimes. In the past, SAARC countries (except Sri Lanka) were among the least open of the world’s economies. The South Asian economies have performed less well in economic terms than their Eastern neighbours. Restrictive trade policies have often been cited as one factor explaining this poor performance. Now, however, both unilateral and preferential trade liberalisation policies have been initiated and implemented by these countries. In this respect, the 1990s represent a period of genuine and successful trade reform, a sharp contrast with the previous four decades. This paper reviews the achievements. New developments in the region raise some important questions. How did this region begin the change towards more liberal trade regimes? Why was reform delayed until the 1980s and 1990s? What were the main forces driving these changes? To what extent have these changes been successful? We seek to provide some answers. This paper provides an overview of recent trade policy changes in South Asia. To answer the above questions, the focus is restricted to unilateral trade liberalisation, ignoring regional integration and liberalisation. Section 2 sets the scene by outlining some of the region’s basic socio-economic characteristics. Section 3 documents briefly the key forces that in the 1980s and the 1990s prompted changes in these trade regimes. Section 4 outlines these changes and plots their progress, while Section 5 assesses the effects of the shifts in policy. The final section then draws some conclusions.

What is Driving India's Food Inflation? A Survey of Recent Evidence

In recent years there has been a great deal of interest in soaring food prices in India, as evidenced by wide discussions on causes of food inflation and its influence on near double-digit overall inflation in 2010 and 2011. This article examines the mix of drivers behind food price inflation through surveying recent evidence. Using this approach, this article demonstrates that the increase in demand for protein and vitamin-based high value food items has been the main driver of recent food inflation although supply shocks and institutional factors are important determinants of food inflation. These findings draw on the idea, as indicated by policy analysts, that finding proper policy response to rising food prices, mainly driven by increasing demand, will be a major challenge in India.

Regaining Missed Opportunities: The Role of Tourism in Post-war Development in Sri Lanka

Sri Lanka had the opportunity to become one of the best tourism countries (TCs) in Asia immediately after independence in 1948. However, it missed opportunities on a number of occasions due to inappropriate economic policies, continuous political violence and war. Between 1983 and May 2009 the Sri Lankan tourism sector was seriously affected by nearly three decades of separatist war. Immediately after the end of the war, tourism in Sri Lanka bounced back and it has now become one of the main engines of economic growth in post-war Sri Lanka. In this article, a historical analysis has been undertaken to demonstrate how, despite its large tourism potential, Sri Lanka missed opportunities and fell far behind its Asian counterparts on a number of occasions. This article demonstrates that opportunities exist for the Sri Lankan tourism sector to play a vital role in the current post-war inclusive development strategy in terms of generating much needed foreign exchange, poverty alleviation via employment generation, accelerating economic growth and uplifting living standards of all Sri Lankans.

Soaring food prices and food security: Does the income effect matter?

While the existing literature on rising food prices in recent years has mainly focused on the causes and calculating the number of people falling below the poverty line in developing countries, less attention has been paid to rising food prices and food security in terms of calorie intake. The main objective of this study is to fill this gap using a case study of a developing country, Sri Lanka. In this study, we estimate the change in individual calorie intake associated with food inflation using the Stone–Geary utility function. The impact at national level is assessed using a calorie intake distribution curve. The results demonstrate that the percentage of undernourished population in Sri Lanka is expected to rise rapidly with food inflation on the basis that there is no income increase during the period under consideration. However, the rise in undernourished population is remarkably low when the income effect is taken into consideration.

A framework for integrated assessment of food production economics in South Asia under climate change

Agriculture is a sector vulnerable to climate change. The potential decline of crop yields from this vulnerability has important policy implications for food security in South Asia. In this study an integrated assessment modelling framework is proposed to link a global economic model with global climate models via an econometric model of crop productivity. It is then used to examine the impact of climate change on food security in individual South Asian countries by exploring the interaction between climate-induced productivity change and changes in food production and food prices. The results of our simulations suggest that unfavourable climate change can reduce food production significantly from the historical trend and create upward pressure on food prices. This, in turn, will have serious adverse impacts on food security in the South Asian region. We present an integrated model of food security in South Asia under climate change.We link a CGE model with climate models via an econometric model of crop yields.We explore interactions among climate change, food production and food prices.Climate change is expected to have serious impacts on food security in South Asia.

Environmental cost of soil erosion in Sri Lanka: tax/subsidy policy options

Abstract The on-site and off-site impacts of land degradation, particularly in the form of soil erosion, pose a serious problem in many developing countries. In Sri Lanka, the implementation of wide-ranging policy reforms and institutional changes designed to move the country toward an outward oriented market economy, have strengthened concerns about environmental degradation and the sustainability of the countrys natural resource base. The environmental impact of many of the policy reforms and economic changes are determined by complex economy-wide, inter-sectoral interactions. A computable general equilibrium model incorporating soil erosion is developed to analyse the impacts of various policy reforms in Sri Lanka. Our analysis establishes three important results. First, economic losses from soil erosion in Sri Lanka are substantial. Second, trade liberalisation reforms increase national income and marginally reduce soil erosion. Third, while trade liberalisation has a positive impact on soil erosion, complementary policies which directly target soil erosion, such as tax/subsidy incentives, are needed to minimise social losses from soil erosion.

Political Violence and Volatility in International Tourist Arrivals: the Case of Sri Lanka

In recent years, a growing body of literature has emerged exploring the link between dramatic fluctuations in tourist arrivals to particular destinations and events such as political violence and financial shocks. Sri Lanka is one such destination that provides a fascinating case study of this link. That is, international tourist arrivals to Sri Lanka have experienced notable fluctuations during the nearly three decades of civil war, particularly between 1983 and 2009. For the first time, an attempt is made in this study to model the conditional mean and conditional variance of the logarithm of monthly tourist arrivals to Sri Lanka. The results reveal a significant seasonal effect in tourist arrivals to Sri Lanka. First, the study demonstrates the existence of a large volatility in monthly tourist arrivals into Sri Lanka from 1978, stemming from the negative publicity in the print and electronic media and the travel warnings issued by Western countries relating to in-country conflict. Furthermore, the results suggest that major war-related incidents are strong enough to reduce the tourist arrival numbers by 5.2% per month compared to a period when peace is restored in the country.

An Analysis of the Sri Lankan Conflict Using an Economic Tool

The Sri Lankan ethnic conflict has imposed substantial costs on the Sri Lankan people. All ethnic groups are either directly or indirectly affected by the conflict. Two main parties of the conflict, the Sri Lankan government and the Liberation Tigers of Tamil Eelam (LTTE), signed a ceasefire agreement (CFA) in 2002 and began peace talks for a negotiated settlement. Despite recent peace talk setbacks and reports on massive CFA violations, both parties repeatedly state their commitment to a peaceful solution. This paper offers a strategic analysis of the Sri Lankan conflict by applying an economic tool, in order to determine the type of political structure most likely to work as a resolution, given the present environment, the power of the parties and their current objectives. An attempt is made to obtain probability statements for a set of political solutions, and to provide an interpretation of their numerical values.

Trade Policy Reforms in South Asia and Australia - South Asia Trade:Intensities and Complementarities

Although trade between Australia and the SAARC region has been quite low, it has been growing in recent years with progressive trade liberalization in Australia as well as in the SAARC region, but the potential for further expansion has not been extensively explored. The objective of this article is to analyze trade flows between Australia and SAARC countries using trade intensity index and the revealed comparative advantage index (RCA) to identify potential areas for further expansion of Australias trade into the region. Our analysis of trade flows also demonstrates that there is a high level of trade complementarity between Australia and member countries of SAARC. This study reveals that there is an untapped potential for Australia to increase its exports to South Asia, based on these com plementarities.