INTRODUCTION

The benefits and challenges of globalization are more pronounced for small open economies, which have to take world prices as given and are unable to affect world demand and supply in any market. Small, open economies also face greater price and income instability, given their narrow range of specialization and their limited endowments. Consequently, they face a formidable challenge in managing their economies in a globalized world. Thus, these countries tend to formulate policies that sometimes vacillate between moving towards or away from globalization. How and why this happens is examined in this chapter, taking Sri Lanka as a case study. The “how” of it is relatively well known, but the reasons “why” these policy changes take place are less well known.

The chapter is structured as follows. After this introductory section, Section 2 examines the factors behind policy movements toward and away from globalization. Section 3 analyses the outcomes of changes in policies towards globalization, while Section 4 documents continuities that exist while these policy changes take place. Section 5 gives the conclusions.

It is evident that economics alone cannot explain attitudes toward economic policies; a good measure of politics, ideology, and history must also be considered. In the case of Sri Lanka, the main factors that have led to changes in policies towards globalization are political leadership, ideology, institutions, and endowments, which are not the bread and butter of economic analysis. Other factors that underpin economic policies have remained largely unchanged over the 1960– 2012 period. These are the preservation of democracy, the large size of the government, strong ideological commitment to the poor, and regular change from one government to another. These were the main continuities.