The Economic Impact of the Recent Ethnic Disturbances in Sri Lanka

Abstract

While ethnic problems have been common in recent Sri Lankan history, attention did not focus on the economic impact of such problems until the major outbreak of violence in July 1983. Much of the violence at that time was centered in and around Colombo and resulted in unprecedented destruction of industrial and trade establishments. The Central Bank estimated that within a 30-mile radius of Colombo, 152 industries and 1,100 shops were affected. Employment losses were estimated at 50,000 jobs. 1 These were the immediate impacts of the disturbances. The longer run and macroeconomic impacts have been much harder to estimate. Initially, the hope was that the July 1983 riots would mark the peak of the troubles. Instead, the problem of communal conflict has steadily worsened over the intervening three years. But while the level of violence and civil strife in the country has increased since July 1983, the impact on GDP has been relatively minor, because the problems have been concentrated in the north and east, areas in which very few of the productive assets of the country are located. Only about a third of the area is suitable for agricultural production. The agricultural mainstay of the national economy, plantations, do not exist in these regions and there is very little industrial activity. The north's greatest resource has been its trained personnel who work outside the north and remit money back to the area. According to the 1981 census, 27% of the Sri Lankan Tamils live outside of the northern and eastern areas (defined as the districts of Jaffna, Vavuniya, Mullai-