Sisira Jayasuriya

The Economic Cost of the War in Sri Lanka

There is growing interest in recent years in the economic dimensions of civil wars and other violent social conflicts. This paper discusses some of the conceptual and methodological problems associated with assessing the economic costs of such conflicts, and presents an evaluation of the costs of the (still ongoing) conflict in Sri Lanka. On conservative assumptions, the war may have cost the equivalent of twice Sri Lankas 1996 GDP.

Multinational firms and export performance in developing countries: Some analytical issues and new empirical evidence

Abstract In a given developing-country environment, are the affiliates of MNEs more export oriented than wholly domestic-owned firms? No clear conclusions emerge from the theoretical models or the few available empirical studies of this issue. This paper draws attention to methodological flaws of these studies and presents new empirical evidence through the application of a more appropriate econometric procedure to data from Sri Lanka. We find no significant relationship between MNE affiliation and the degree of export orientation of exporting firms. On the other hand, there is evidence that multinational affiliation is an important determinant of whether a firm is an exporter or not.

Economic policy shifts in Sri Lanka: The post-conflict development challenge

The end of the long civil war in Sri Lanka in 2009 generated widespread expectations of a peace dividend that would enable the country to embark on a period of sustained economic growth. Recent developments have dampened that optimism, however, rekindling fears that Sri Lankas tale of missed opportunities may continue. After showing remarkable resilience during decades of war and conflict, the Sri Lankan economy has failed to capitalize on the window of opportunity presented by the end of the military conflict. In the aftermath of military victory, there has been a sharp reversal of trade liberalization and a marked shift back towards nationalist-populist state-centered economic policies, reflecting the pressures of resurgent nationalism, an unprecedented concentration of political power in a small ruling group, and the influence of some powerful vested interests. Unfortunately, a return to the failed past policies of inward-oriented development strategies offers no viable solutions for the problems confronting small, capital- and resource-poor countries in todays globalized world. Sri Lanka must change both its political practices and economic policies drastically and urgently to cope with the huge development challenges facing it in an environment of global economic turbulence.

The Asian Tsunami

The 2004 Asian tsunami was the greatest natural disaster in recent times. Almost 230 000 people died. In response, governments in Asia and the broader international community announced large aid programs. The resulting assistance effort was one of the largest humanitarian programs ever organized in the developing world. This book discusses the lessons of the aid effort for disaster protection policy in developing countries.

China, India and the Commodity Boom: Economic and Environmental Implications for Low-Income Countries

The international role of China has risen steadily for two decades – and has become even more important in the current global recession. The growing supply of labour-intensive manufactured exports from China has been accompanied by a huge expansion in its imports both of raw materials and of skill-intensive manufactured parts and components. This ‘offshoring’ of intermediates production by a large, labour-abundant economy has economic and environmental implications for other developing economies. More recently, the rapid expansion of the Indian economy and trade indicates that it too will soon exert similar effects on global markets. We sketch a model showing how the growth of these developing-country ‘giants’ generates adjustment pressures on other developing economies. We discuss in particular how differences in relative factor endowments of resource-rich economies can produce quite different outcomes in the context of product fragmentation and expanding commodity trade. We also explore the effects on production, trade, environment and prospects for future growth in resource-rich economies, particularly in the context of weak institutions and other market failures. We illustrate these different impacts by considering the cases of Indonesia, Malaysia and Thailand and highlight implications for growth, development and policy.

Trade and Tax Policy Reform and the Environment: The Economics of Soil Erosion in Developing Countries

The widespread view that trade reform is bad for the environment has rarely been subjected to close scrutiny. In a developing country model we trace general equilibrium impacts of tax and tariff policy changes on upland resource allocation and, by implication, on the rate of erosion. Our analysis highlights the role of domestic market linkages as conduits between lowland and upland economies. When economywide effects are taken into account, indirect policies such as tariff reforms may in some cases provide better means for reducing upland erosion than would direct environmental policies.

Liberalization and Productivity Growth: The Case of Manufacturing Industry in Nepal

The proposition that liberalization improves productivity growth is examined using data from Nepalese manufacturing-a least developed country that implemented trade liberalization during the 1980s. Productivity growth in general was negative in both the preand post-liberalization periods, but a marginal improvement was detected in the latter period in that the decline in productivity growth was arrested. Higher productivity growth took place in industries with relatively large-scale production and foreign investment. The magnitude of the impact of foreign investment, however, depends on the incentive environment. The analysis suggests that, while trade and exchange rate policy reforms may be a necessary condition for improving productivity growth in least developing countries, they are not sufficient. Shortages of human capital and physical infrastructure need to be redressed if potential productivity improvements are to be fully achieved.

Intra-industry trade and protection: Which way does the causation go?

Abstract This paper analyses the simultaneous determination of intra-industry trade (IIT) and tariffs. The results demonstrate that which IIT is influenced by tariffs, reverse relationship does not hold. Our results indicate the single equation models can suffer from simultaneity bias.

Liberalization, export incentives, and trade intensity: new evidence from Nepalese manufacturing industries

Abstract This paper presents an empirical analysis of the consequences of liberalization and export incentives on trade intensity in Nepal, a “least developed” country with weak institutions and severe infrastructure bottlenecks. Industry level evidence provides no support for any link between protection and export performance, or that export intensity is determined primarily by relative factor abundance. Results suggest that lower protection and public sector dominance lead to higher import penetration, and that foreign investment increases import penetration when the policy regime is restrictive. Although some of these phenomena are due to specifically Nepalese factors, such as its open border with India, some general policy lessons for other least developed economies emerge.

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.