In order to increase exports, the Sri Lankan government must reform its import tariffs, Harvard economist Robert Lawrence said Thursday.
“Tariffs are the wrong way to raise revenue,” he said, addressing an audience at the Lakshman Kadirgamar Institute. Lawrence is the Faculty Chair of the Practice of Trade Policy Executive Program at the Harvard Kennedy School.
He said misplaced protectionist policies had hurt Sri Lanka’s economy.
The decline of exports as a percentage of GDP since the early 2000’s, he argued, correlates with the increase of import tariffs. Professor Lawrence said he could discern no rationale in the implementation of tariffs over the years, and it seemed to him “that they are more accurately a history of who had political influence than they are of who is a great economic strategist.”
He said Sri Lanka should instead move towards a simpler tariff structure, and implement direct taxes on things like income and property to maintain revenue. “90 percent of your tariffs should be in the simple schedule, and then there may be some exceptions,” he said noting that those exceptions should be for firms that actually had long-run growth potential.
“I think an outward orientation is very critical,” he said. “Also, it’s hard to judge what you really are competitive in, and what you really could add value in, when you are putting these penalties on your firms by giving them costly inputs.”
He cited the example of the booming air conditioning manufacturing industry in South Africa, which developed domestically as a response to hot conditions in gold mines.
Sri Lanka needs to “create an environment that rewards investment,” he said. “And then let a thousand flowers bloom.”