An input-output modeling approach as an effective development strategy for Sri Lanka

This paper is aimed at measuring industrial interdependence using a symmetric input-output table complied for the Sri Lankan economy for 2006 to find an effective development strategy for the country. The input-output model is constructed for thirty aggregated industrial sectors of the economy as a whole. The output, value added and income multipliers reveal that there are five key industries of the Sri Lankan economy. These are: (1) recreational, cultural, sporting services and other services; (2) manufactured products of food, beverages and tobacco sector; (3) air transport services; (4) rubber & plastic products; and (5) metallic, non-metallic and mineral products. The employment multipliers are highest in: (1) real estate services; (2) electrical products; (3) petroleum & chemical products; and (4) rubber & plastic products industries. We found that five industries (sectors) have strong upstream and downstream vertical integrations with the rest of other sectors in the economy. The results reveal that higher prices charged on the petroleum & chemical products would probably result in higher costs to most of other sectors in the economy relatively equally. As ‘mining and quarrying, electricity, gas and water’ sector has strong downstream linkages to other sectors in the economy, higher prices (or taxes) charged on these products also result in higher costs to most of other sectors in the economy. The findings of the study reveal that prioritizing industries should be done based on an input-output analysis rather than just depending on the information provided by percentage of contribution in output and value addition to GDP by the sectors. However, the results should be interpreted very carefully as the impact of some sectors such as education difficult to be practically measured in monetary terms based on an input-output model.