Sri Lanka

Hausmann: Liberalising migrant labour policies key to propel growth

May 18, 2018

Ricardo Hausmann, Growth Lab Sri Lanka project in Sunday Observer

Sri Lanka has the potential to accelerate its economic growth by creating access to know-how through liberalised immigration policies, opines a renowned expert on development economics.

Addressing a recent lecture on the topic of ‘Accessing know-how for development’, Director of Centre for International Development (CID) at Harvard University, Prof. Ricardo Hausmann says the low addition of new products to the island’s export basket in the last two decades was primarily due to the barriers in...

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EDB collaborating with Harvard Center for International Development to boost exports

January 17, 2017

DailyFT

The Sri Lanka Export Development Board (EDB) is collaborating with the Harvard Center for International Development on a project to identify and rapidly catalyse new or emerging export sectors and enlarge Sri Lanka’s export basket. 

The initiative is being held under the guidance of the Ministry of Development Strategies and International Trade, the Sri Lanka Export Development Board (EDB) and the Board of Investment (BOI).  

On the request of State Minister of International Trade, Sujeewa Senasinghe, last week a meeting with Prof....

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Andrews, M., et al., 2017. Learning to Target for Economic Diversification: PDIA in Sri Lanka.Abstract

Many countries, like Sri Lanka, are trying to diversify their economies but often lack the capabilities to lead diversification programs. One of these capabilities relates to targeting new sectors to promote and pursue through a diversification policy: countries know they are ‘doomed to choose’ sectors to target,1 but lack effective capabilities to do the targeting. This paper narrates a recent (and ongoing) initiative to establish this kind of capability in Sri Lanka. The initiative adopted a Problem Driven Iterative Adaptation (PDIA) process, where a team of Sri Lankan officials worked with Harvard Center for International Development (CID) facilitators to build capabilities. The paper tells the story of this process, providing documented evidence of the progress over time and describing the thinking behind the PDIA process. It shows how a reliable targeting mechanism can emerge in a reasonably limited period, when a committed team of public officials are effectively authorized and engaged. The paper will be of particular interest to those thinking about targeting for diversification and to those interested in processes (like PDIA) which are focused on building state capability and fostering policy implementation in public contexts.

1 The term here comes from Hausmann, R. and Rodrik, D. 2006. Doomed to Choose: Industrial Policy as Predicament. Draft.

Andrews, M., et al., 2017. Learning to Engage New Investors for Economic Diversification: PDIA in Action in Sri Lanka.Abstract
Many countries, like Sri Lanka, are trying to diversify their economies but often lack thecapabilities to lead diversification programs. One of these capabilities relates to engaging new investors—in new sectors—to bring their FDI and know-how to a new country and kick-start new sources of activity. This paper narrates a recent (and ongoing) initiative to establish this kind of capability in Sri Lanka. The initiative adopted a Problem Driven Iterative Adaptation (PDIA) process, where a team of Sri Lankan officials worked with Harvard Center for International Development (CID) facilitators to build capabilities over a six-month period. The paper tells the story of this process, providing documented evidence of the progress over time (and describing thinking behind the PDIA process as well). It shows how an investment engagement approach can emerge in a reasonably limited period, when a committed team of public officials are effectively authorized and engaged. The paper will be of particular interest to those thinking about investor engagement challenges and to those interested in processes (like PDIA) focused on building state capability and fostering policy implementation in public contexts.
Andrews, M., et al., 2017. Learning to Improve the Investment Climate for Economic Diversification: PDIA in Action in Sri Lanka.Abstract
Many countries, like Sri Lanka, are trying to diversify their economies but often lack thecapabilities to lead diversification programs. One of these capabilities relates to preparing the investment climate in the country. Many governments tackle this issue by trying to improve their scores on ‘Doing Business Indicators’ which measure performance on general factors affecting business globally (like how long it takes to open a business or pay taxes). Beyond these common indicators, however, investors face context specific challenges when working in countries like Sri Lanka that are not addressed in global indicators. Governments often lack the capabilities to identify and resolve such issues. This paper narrates a recent initiative to establish these capabilities in Sri Lanka. The initiative adopted a Problem Driven Iterative Adaptation (PDIA) process, where a team of Sri Lankan officials worked with Harvard Center for International Development (CID) facilitators to build capabilities over a six-month period. The paper tells the story of this process, providing documented evidence of the progress over time (and describing thinking behind the PDIA process as well). The paper will be of interest to those thinking about the challenges associated with creating a climate that is investor or business friendly and to those interested in processes (like PDIA) focused on building state capability and fostering policy implementation.
2017. Recommendations for Trade Adjustment Assistance in Sri Lanka, Growth Lab at Harvard's Center for International Development.Abstract

Sri Lanka has an excessively complex tariff structure that distorts the structure of the economy in important ways. It is a priority for the Government of Sri Lanka (GoSL) to rationalize the system in order to facilitate a transition to greater economic diversification, stronger export growth, and the emergence of new, higher paying jobs. Sri Lanka’s New Trade Policy makes this tariff rationalization a priority. It also recognizes that tariff rationalization should go hand in hand with new trade adjustment assistance measures to support the adjustment of firms and of people. The New Trade Policy outlines the basic contours of tariff rationalization and trade adjustment assistance measures but does not provide a detailed roadmap.

This discussion paper was prepared at the invitation of the Ministry of Development Strategies and International Trade (MoDSIT) as part of the Center for International Development’s research project on sustainable and inclusive economic growth in Sri Lanka. The aim of the paper is to study policy tools that the GoSL could use to structure trade adjustment assistance in the context of tariff rationalization. In order to accomplish this aim, we begin by outlining the type of tariff rationalization that needs to take place in order to address key constraints to growth in a way that is sensitive to both government revenue needs and political economy considerations. We stress that tariff rationalization must be approached in a holistic way that treats the various tariffs and para-tariffs as interrelated, rather than an approach that attempts to address one part of the system at a time. A holistic approach would provide many degrees of freedom to solve the underlying problems in the system while increasing revenues and potentially generating strong public support. Critically, a holistic approach would allow for a single tariff rationalization plan to be phased in over a period of years in a predictable way, whereas attempts to rationalize the system one part at a time would lead to extreme uncertainty.

With the principles of smart tariff rationalization in place, we draw upon international lessons and Sri Lanka’s own institutional capabilities to recommend a two-tiered approach to helping industries and workers adjust. In each case, the first tier represents low-cost measures that can begin in the short term to help industries and workers, regardless of whether they will be negatively impacted by tariff rationalization, while the second tier of assistance applies only to trade-affected industries and workers and can be developed in the medium term. For industries, Tier 1 support involves the use of an innovative process of public-private problem solving of industry-specific constraints, and Tier 2 support involves the use of special safeguard measures to provide an objective and transparent process for determining which industries require longer phase out periods for tariff reductions versus the tariff rationalization plan. For workers, Tier 1 support involves improved access labor market information and training opportunities through the development of regional (or local) job centers. Tier 2 support provides government funding for training and job placement services. We conclude that this package of trade adjustment assistance measures could be used to complement a holistic tariff rationalization plan. But we caution that attempts to rush the implementation of these measures without careful design and communication could deeply undermine the potential for the reforms to work in solving underlying economic problems.

O'Brien, T., et al., 2018. Opportunity Analysis of Agriculture Products in Sri Lanka. Measuring markets and feasibility.Abstract

In August 2017, CID began focused work with Sri Lanka’s Ministry of Primary Industries (MPI), specifically with their Agriculture Sector Modernization Project(ASMP) team. MPI requested Harvard assistance in the analysis of constraints and opportunities in the agriculture and fisheries sector, specifically in non-plantation, export-oriented activities. As a first step, CID worked with MPI research officers to compare the more than twenty agricultural and fishery subsectors being considered under the ASMP. These subsectors were analyzed across over 53 quantitative and qualitative variables, measuring market demand, feasibility, current strength, and poverty considerations. The analysis ultimately identified spices (especially pepper), aquaculture (especially shrimp) and plantains and bananas as especially promising subsectors for future research and ASMP activities. More broadly, the analysis identified the basic market and feasibility considerations that can provide a starting point for value chain analyses and public-private strategic planning. This presentation was prepared jointly by MPI project officers and CID Growth Lab researchers in order to inform MPI initiatives, both within the ASMP and beyond.

agri_sector_opportunities_chart

Sennett, J., 2018. Engaging Overseas Sri Lankans to Facilitate Export Diversification.Abstract

Insufficient export diversification is a binding constraint to economic growth in Sri Lanka

  • The Harvard CID growth diagnostic found that with wages in traditional export sectors now below average Sri Lankan wages, new higher-wage export industries are required

Overseas Sri Lankans (OSL) have the potential to create new export industries in Sri Lanka

  • Diasporas were involved in the export-led development of India, Taiwan, and China by bringing industry knowhow and market connections to their home countries
  • There are large, well-educated OSL communities living in the US, UK, Canada, and Australia that have the industry knowhow to assist in export-led growth in Sri Lanka

OSL can have the biggest impact on diversifying exports if they return to start firms in new export industries rather than working with firms while based overseas

  • OSL can play a useful role connecting the existent Sri Lankan IT export sector to overseas markets, but they cannot start firms in new export industries from abroad
  • If OSL return to start firms they can “seed” a new export industry that grows organically through the diffusion of knowhow
  • The pharmaceutical sector is an example of an industry with high potential to be “seeded” by returning OSL entrepreneurs

Preliminary policy recommendations focus on removing barriers and catalyzing latent motivations to facilitate OSL return entrepreneurship:

  • The Department for Immigration and Emigration should continue to ease border processes for OSL through dual citizenship and the OSL lifetime resident visa
  • The Board of Investment should orient part of its “one-stop-shop” to dealing specifically with OSL issues
  • The Ministry of Foreign Affairs should utilize its diplomatic network to engage potential OSL entrepreneurs to catalyze latent motivations to return

*This is an edited version of a Policy Analysis written in fulfilment of the requirements for the degree of Master in Public Administration in International Development, John F. Kennedy School of Government, Harvard University

Growth Diagnostics in Real Life: The Growth Lab's Project in Sri Lanka

On today's episode of The Growth Lab Podcast, CID Student Ambassador Emily Ausubel interviews Tim O’Brien and Dan Stock, Research Fellows at Harvard's Growth Lab. Tim and Dan discuss the Growth Lab project in Sri Lanka and how they are applying the Growth Diagnostics Methodology to identify the country’s binding constraints for diversification and economic growth. Read the Growth Diagnostic. Read more about Growth Diagnostics in Real Life: The Growth Lab's Project in Sri Lanka

Sri Lanka’s economic recovery from coronavirus

April 17, 2020

Ricardo Hausmann in the Daily Mirror

The purpose of this article is to suggest how Sri Lanka can undertake significant structural reforms in the aftermath of this global pandemic and place herself in a position of increased economic strength.

Apart from the money the government will have to spend towards the medical management of the virus, it will have to spend a significant sum of money on social welfare and also support the corporate sector in the coming months. Economists are unable to estimate the sum of money that will be required for this purpose...

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Tariffs, Tea, and Trade: Research Notes from Sri Lanka

During large research engagements like the one conducted by the Growth Lab at Harvard’s Center for International Development in Sri Lanka from 2016-18, the research team produces many presentations, research notes, and other deliverables that share research findings incrementally with government counterparts. The Growth Lab team uses a variety of types of deliverables with the aim of developing adaptive collaborative...

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Stock, D., 2019. Exit and Foreign Ownership: Evidence from Export-Oriented Firms in Sri Lanka.Abstract
While foreign direct investment may play a transformative role in the development of economies, foreign-owned firms are also said to be more “footloose” than comparable local firms. This paper uses a semi-parametric approach to examine the link between firm ownership and exit rates, tracking a set of export-oriented firms operating in Sri Lanka in years between 1978 and 2017. We find that foreign firms are in fact 42-56% more likely to exit than local firms, but only for their first years of existence. In their later years, foreign firms are actually less likely to exit than local firms, though this late advantage is not statistically significant when conditioned on the firms’ initial characteristics (such as employment size). This pattern supports the theory that foreign firms face a steeper early learning curve in adapting to local conditions.

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