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Impact of Protection on Domestic Processing of Primary Commodities for Export Markets

Processing of primary commodities to export more ‘value added’ products has become a widely adopted development strategy to accelerate employment and export revenues in many developing countries following the experience of East Asian NICs. However, policies which are in place to protect domestic producers limit the effectiveness of such an approach by introducing distortions in factor and input markets. In this paper, we examine how protection for a group of primary product producers affects the performance of domestic value addition for export markets. We consider the case of the tea import regulation policy of Sri Lanka and its effects on the performance of exporting tea in a value added form. The analysis shows how protection of a producer group can prevent development of the value added tea export industry of Sri Lanka. The findings should be of interest to policy makers as well as development analysts.