An investigation of the impact of some recent external and internal shocks on the economy of Sri Lanka
Abstract
This thesis seeks to evaluate the economic impact of some internal and external shocks experienced by the Sri Lankan economy within the last two decades. In Part I, a two country, two good model was used to evaluate changes in welfare, caused by the inflow of capital and changes in the terms of trade, in the presence of distortions such as tariffs and taxes, in the period 1972 to 1985. Parameters required in the model were estimated. The terms of trade recorded an overall, though not monotonic, decline in this period. Welfare changes were computed for a range of parameter values. For maximum parameter values, an overall welfare gain occurred in the period. However, with minimum values this changed to an overall loss. The distortions in the economy were found to affect welfare significantly. The change in welfare was found to be more sensitive to the elasticity of the offer curve of the Rest of the World, than to its marginal propensity to consume its export good. Part II of the thesis considers the economic implications of implementing a major development project. A Computable General Equilibrium Model was developed for this purpose. Utilizing a Social Accounting Matrix, a pre-project equilibrium was obtained. Three experiments were conducted to investigate the impact of the project. From the perspective of the three Household types in the economy --viz. Urban, Rural and Estate--adopting the project was found to be welfare improving. Project implementation led to increased employment and a reduction in consumer prices, but resulted in a deterioration of the terms of trade of Sri Lanka vis a vis the Rest of the World. An alternative to the project--a direct increase in the endowments of the consumers without implementing the project--was considered. Though the Rural Household had a higher level of welfare in this alternative scenario, aggregate Household utility, evaluated on the basis of compensating variation, was highest when the project was implemented.
Degree
Ph.D.
Advisors
Kadiyala, Purdue University.
Subject Area
Economics
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