Foreign Investments And Exports: Is It The Therapy For Sri Lanka’s Underdevelopment?
Dhanusha Pathirana
It is firmly believed in orthodox circles that inward foreign investment is the principal source of technological and organizational skill to an underdeveloped economy which the domestic entities struggle to acquire through indigenously designed means. Further, foreign investments are believed to be an ideal source of non-debt driven inflows to bridge the perpetual shortage of capital, deemed as a common syndrome in underdeveloped economies. In this light, economists suggest that foreign investment should be attracted over foreign debt to offset the lack of capital and to ensure underdeveloped economies can survive current account deficits that accumulate during economic growth and for the latter to be ‘sustainable’ in the long run.
In the following account we attempt to understand the general character of the Sri Lankan economy by explaining the current state of its factor organisation and by placing it against the views expounded by orthodox economists who identify it merely as an economy in short supply of foreign exchange, domestic savings and exports, which is more of an accounting interpretation of the economy rather than that of the economy itself. Further, the idea of “sustainable economic growth” that is repeated by economists will be probed to understand what is suggested by the term.
In this backdrop the structural character of FDIs received by Sri Lanka will be examined in connection with the fundamental issue the Sri Lankan economy now inherits. The conditions which govern the structure of FDIs and whether FDIs into Sri Lanka have been reflecting the characteristics assigned to them by economists will also be probed. In this regard, the development process of selected East Asian economies will be examined at a comparative level to assess the role of foreign direct investments in their development experience and the particular model of growth Sri Lanka could adopt considering the latter.
Overview of the Structure of the Sri Lankan Economy and the Motivation to “Sustain” It
A recent article published in the Daily Financial Times titled “Way Forward for Sustained Growth” by W. A. Wijewardena based on views presented by Sri Lanka’s two eminent economists, namely Professor A. D. V. de S. Indraratne and Dr. G. Usvattearatchi at the Sri Lanka Economic Association (SLEA) 2013 Annual Sessions asserts the point regarding foreign investments and sustainable growth quite earnestly:
