Globalization, Policy Reforms and Productivity Growth in Developing Countries: Evidence from Sri Lanka

Abstract

Sri Lanka’s economic policy strategies radically moved away from inward-looking import-substituting industrialization to outward-looking export-oriented industrialization (EOI) in 1977. The EOI strategy was implemented through a broad agenda of reforms including trade liberalization, privatization of state owned enterprises and financial deregulation. These reforms had a profound impact on productivity in the export oriented production sector (primarily manufacturing) and laid the foundation for rapid growth and structural change. This study empirically analyzes the impact of policy reforms on the total factor productivity (TFP) of manufacturing industries in Sri Lanka. A balanced panel data set of all 27 manufacturing industries over 21 years is used. The industry heterogeneity effects are taken into account through the validation of a fixed effects model. The empirical results confirm, in general, that post 1977 pursuit of the EOI strategy has resulted in TFP growth. However, in an uncertain investment and economic climate due to the ethnic conflict that has engulfed Sri Lanka, TFP growth has reversed dramatically since 1994. The findings reinforce the view that in order to increase productivity and growth in developing countries in this era of Globalization the pursuit of open economy policies alone is insufficient. Fostering of a stable political environment is also necessary.

The Effects of Capital Formation on Economic Growth in India: Evidence from ARDL-bound Testing Approach

“…Public sector fixed capital formation did not have any significant impact upon the economic growth from 2000 to 2010 in these euro area nations. Bandara and Karunaratane (2013) empirically analyzed the impact of policy reforms upon the total factor productivity of the manufacturing industries in Sri Lanka. Using the cases of 27 manufacturing industries data over 21 years, they have found that export-oriented industrialization is the sole driver of total factor productivity growth, hence capital formation since 1977.…”

Designing and Creating Global Economic/Business Regions: A Case Study of the Rio Grande Valley Region

“…Both Puget Sound region ( Forbes , 2014a; German American Chambers of Commerce, 2014; Parkhurst, 2012; Waddell, 2013) and Oresund region (Oresund Region, 2014a–2014c) are some of the world’s most excellent and prominent scientific and technological innovations and creativity international regions. Illustratively, globalization and economic growth are often seen as interlinked factors (Bandara & Karunaratne, 2013).…”

“…An excellent example of international management/business literature that informs this study is ‘Globalization, Policy Reforms and Productivity Growth in Developing Countries: Evidence from Sri Lanka’ by Yapa M.W.Y. Bandara and Neil D. Karunaratne (2013). Bandara and Karunaratne (2013) present an excellent analysis of the dynamic linkages that exits among economic, policy reforms and globalization.…”

“…Bandara and Neil D. Karunaratne (2013). Bandara and Karunaratne (2013) present an excellent analysis of the dynamic linkages that exits among economic, policy reforms and globalization. The work by W. Charles Sawyer and Richard L. Sprinkle (2006) is a comprehensive text on the principles and analysis of international economics.…”

Determinants of Total Factor Productivity Growth in Nigeria, 1970–2009

“…2.We only provide a brief summary of empirical literature on the determinants of TFP; for a detailed review of previous studies on determinants of TFP, one can consult the works of Nelson (1981), Griliches (1992), Isaksson (2006, 2007), Keller and Yeaple (2003) and Bandara and Karunarate (2013). …”