Sri Lanka's path to middle income status has been remarkable in several ways, with consistently high GDP growth rates and enviable performance in education, health and poverty reduction. The end of Sri Lanka's 26-year conflict led to a further acceleration of economic growth, with real annual growth rates in GDP per capita exceeding 7 percent from 2010 to 2012. But growth collapsed thereafter and has remained at or below 4 percent for the last four years, slowing the rate of Sri Lanka's overall development and leaving many parts of the country left behind. The country's path to development must now change to sustain a convergence with high-income countries.
The post-war boom was unsustainable because of the structure of growth itself, which has been uniquely inward-oriented. Exports and export-oriented FDI have been fairly stagnant over the last two decades, failing to keep pace with overall growth and the growth of imports. As a result, Sri Lanka has run into recurring balance of payments crises. At the same time, the country has faced a steadily weakening ability to collect tax revenue, making it increasingly difficult to invest in the public goods needed to stimulate sustainable and inclusive growth into the future.
In January 2015, Sri Lanka elected a new government with a vision of promoting sustainable development and reconciliation. As Sri Lanka's political institutions undergo an important transformation, certain economic changes will also be required to put growth on a more sustainable and more inclusive footing. The Center for International Development at Harvard University is collaborating with the Government of Sri Lanka through a grant by the Open Society Foundations (OSF) to provide research support to help the country move toward this future.
The project has 3 key components:
Growth and Transformation
CID's Growth Lab is doing in-depth, tailored analysis of Sri Lanka's economy – to diagnose what is constraining the country’s growth, identify the most fruitful areas in which to diversify the economy, and identify what actionable reforms and projects are required to achieve sustainable and inclusive growth. This applied research and training is conducted mainly in collaboration with the Prime Minister’s Office and the Ministry of Development Strategies and International Trade (MODSIT).
CID's Building State Capability Program is conducting action-research with implementation teams drawn from across the Government of Sri Lanka, to develop new ways to implement the reforms and projects necessary to achieve sustainable and inclusive growth, and to foster new capabilities within the government. This action-research and training is conducted in collaboration with MODSIT and other agencies and ministries across the government.
CID's Growth Lab is also conducting research into ways to reform and improve Sri Lanka’s trade policy and implementation of trade commitments, including negotiation of partnerships and agreements to be able to achieve sustainable and inclusive growth. This applied research and training is conducted mainly in collaboration with MODSIT.
The research team is led by Ricardo Hausmann, Matt Andrews and Robert Lawrence, along with CID Research Fellows Ermal Frasheri, Peter Harrington, Tim McNaught, Ljubica Nedelkoska, Tim O’Brien, Salimah Samji, and Daniel Stock.