Impact of Globalization on Sri Lankan Economy

1996 words (8 pages) Essay

5th Jun 2017 Economics Reference this


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Globalization is a multifaceted, multidisciplinary topic in its broadest reach. It is an integration of countries and people which is made possible by the reduction of transportation and communication cost. It includes economic, political, social and cultural aspects.

For the globalization to be effective countries should open their economy, lower their barriers to trade for the capital, goods and services to flow. Without this policy shift globalization would be less effective.

The effects of Globalization are manifold, affecting various aspects of the world economy to bring about overall betterment. The IT revolution coupled with the growing embrace of free market policies in the wake of communism, have led to the incomparable amalgamation of economies and mixing of cultures around the world.

Globalization and International Trade

International trade is the main element of globalization. For countries this has increased access of their products to larger, international markets. This access has created new opportunities to benefit from international labour and to be competitive in world market.

An actively trading country benefits from new technologies that are open to it from its international trading partners. This helps the developing countries to be competitive with the developed country.

International trade and globalization has created risks for the infant industries and those that are less competitive. To protect these industries protectionist policies are applied which restricts the international trade and globalization.

To get the maximum utilization from international trade countries should consider the comparative advantage and specialize in the areas which they have less opportunity cost.

Globalization and International Trade in Sri Lanka

Historical evidence shows that Sri Lanka was a hub in the silk route in the early days which allowed it to benefit from international trade. The country was rich with spices, gems, and elephant which attracted the traders from Far East countries to have trade relations with the country this made Sri Lanka a core in international trade centuries ago.

To facilitate international trade Sri Lanka became a member of the World Trade Organization (WTO) in 1995. Increased integration into global economy has created both positive and negative impacts in Sri Lankan industries.

Impact of Globalization in Plantation Industry

Globalization has created both prospects and challenges for the plantation industry. It has introduced new harvesting technologies which has helped to produce good quality products. These new technologies have also assisted in increasing productivity. Introduction of partial mechanization has facilitated to save labour. Globalization has created new markets and has increased production with the help of technology.

Skilled worker out-migration has created a real challenge for the plantation industry.

3.2 Impact of Globalization in Rubber Industry

Globalization has made significant changes in the rubber industry. Rubber industry plays a vital role in tire and medical insulation products manufacturing. The fast evolving auto-mobile industry has created demand in the tires which in turn has increased the demand for natural rubber. Rubber industry is governed by the International Natural Rubber Agreement (INRA) which helps to stabilize the price of rubber in world market.

3.4 Impact of Globalization in Mining Industry

This mainly includes the gem mining industry. With the open economic policy in the 1977 this industry flourished. Globalization created a place for Sri Lankan gems in the world market. Diamonds and gems became a major export to the country. Globalization has introduced new technologies associated with gem mining in cutting, polishing and identification of gem stones.

3.5 Impact of globalization in Service industry

Globalization, privatization and more demand for intermediate and final consumer services have lead the service sector to be the helping hand for the social and economic growth of a nation. Service sector is the largest and fastest growing sector, employing more people and contributing more to the global and national output.

Sri Lanka’s service sector has witnessed a major boom and is the major contributor to employment and national income. Service industry includes Health care and Education, Foreign Employment, Communication, IT industry, BPO sector, Banking and Tourism.

3.5.1 Health care and Education

Key service industry is health care and education. A strong healthcare and education system helps to create a strong and diligent human capital, who will contribute productively to the country’s growth.

Education sector once a fully public sector in Sri Lanka is now opened to many private universities and institutions. This has allowed many to continue their secondary and tertiary education in numerous fields. These well educated youths are playing a vital role in the development of the country.

Health care is another sector that was fully under the control of the government. Today, globalization has helped many patients to benefit from foreign medicines and to get consultation from foreign experts which has saved millions of lives.

3.5.2 Foreign Employment

Globalization and integration of regional economies have added impetus to the growing mobility of workers across borders. Labor migration supports development of the country through remittances. Majority of the labour migrant workers are unskilled or semi skilled. More than half of the migrant workers working in Middle East are women, and many are in domestic work or irregular works.

High skilled employees walking out of our shores have lead to brain drain in the country.

3.5.3 Communication

The deregulation of the telecom industry in Sri Lanka in the early 1990s brought multiple players and service providers to the country. The number of telecom operators stands at 70, as of December 2009.

Globalization allowed Foreign Direct Investments (FDIs) in telecommunications sector. This endorsed Sri Lanka to bring Technology and Management know-how at a decisive moment. Over 80% of investments in value are owned by regional telecommunication giants which has helped the industry to be aligned with global trends.

3.5.4 IT industry

The IT industry has achieved growth after the liberalization. The industry is performing well amidst tough competition. Despite the lack of knowledge pool compared to India the IT industry leader in Asia Sri Lanka has been able to compete in the global market. Virtusa, IFS and Millennium IT are some of the leading IT companies that have set their branches in Sri Lanka

3.5.5. BPO Sector

Globalization made Sri Lanka to emerge as a potential destination for outsourced work with low labour cost, low operational costs, and tax incentives. Liberalization and the current peace situation in the country has attracted many BPO companies. MphasiS a BPO giant in India is in the process of setting a base in Sri Lanka

3.5.6 Banking Sector

Liberalization has lead to foreign banks getting access to local market and private investors to enter the banking domain. These banks are governed by the same rules and regulations that govern the domestic banks. HSBC, Standard Chartered Bank, Deutshe Bank, Citi Bank and Indian Overseas Bank are some of the foreign banks that are operating in Sri Lanka.

These foreign banks are giving a tough competition for the local banks.

3.5.7 Tourism

Tourism is one of the fastest growing big business in the global economy. Sri Lanka being a tropical island is one of the best tourist destinations in Asia and with the end of the ethnical war in the country it has attracted more tourists. This increase of tourist arrival has created new job opportunities and had brought foreign exchange and investments to the country.

The dark side of this industry is that globalization and thrives of tourism industry increases exploitation of children and women into sex trade.

3.6 Impact of globalization in Garment industry

Garment industry has an important role in Sri Lanka’s economy. After the open economic policy in 1977 garment industry accounts for almost 65 per cent of the total export earnings. Garment industry is the largest net foreign exchange earner since 1992. Globalization has allowed Sri Lanka to increase the garment production to benefit from the wider market that has been opened to it.

Multinational corporations introduced to Sri Lanka’s garment industry through globalization have supported the industry immensely. Globalization has blessed the garment industry with technological advancement which has helped to reduces the production time and cost.

Garment industry has created new employment opportunities for many, especially women. The industry employs more than 5 per cent of country’s employment with majority of female workers. This has helped to increase the standard of living which in turn has lead to the economic development of the country.

The quota free era has created heavy competition in the apparel industry. Major players were able to remain competitive in the market by maintaining the reputation for high quality products and producing world class brands. MAS holdings and Brandix the leading garment exporters are the major single supplier for brands like Gap, Marks & Spencer, Victoria’s Secret, NEXT, Lands’ End, Abercrombie & Fitch, Old Navy and Tommy Hilfiger.

But still this informal service sector has many unhealthy working practices which are below the standard. This includes long working hours, below the standard salary scale, poor working conditions, negligence of health and safety practices.

Other negative impacts of globalization in Sri Lanka

Liberalization has created more opportunities for the middle class and the upper class in the society and has completely neglected the poor. Low rate of job creation and multinational firms offering higher wages increased the gap between the rich and poor within the society.

Service sector blossomed as the main source of employment. Low skilled labour is neglected and many who worked in the low skilled labour sector lost their jobs. This increased the unemployment ratio in the country.

Globalization has threatened the infant and less competitive industries. These industries have to fight with the international companies. Some of these have become endangered industries.

Globalization encourages social ills. It is the cause for the increase in the number of child abuse cases. Globalization and liberalization for everything has encouraged pornography and prostitution. The number of under aged in this industry is in rise in Sri Lanka.

Illicit drug trade is encouraged by globalization. Deregulated and privatized markets have allowed the drug industry to spread its wings around the world. Sri Lanka has become a victim of this. The number of youths addicted to drugs is in rise.

Privatization of enterprises has made ensuring compliance with environmental standards a difficult task. This has lead to rapid deforestation, excessive soil erosion, land degradation, pollution and loss of biological diversity.

Globalization is the cause for the spread of western culture and protecting the domestic culture is a real challenge.


The allegations of globalization for Sri Lanka are many. It has created interdependence and competition between the economies of the world market. Today globalization has made domestic economy more dependent on both domestic and international policies and economic conditions.

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