While Sri Lanka is geographically closer to India, there are greater similarities in economic structure with many Southeast Asian countries. Sri Lanka is a small open economy. Foreign trade has always played a pivotal role in the functioning of the economy. Politically the country has exhibited a preference for democratic parliamentary forms of government, which are compatible with an underlying cultural individualism. There are important differences, however, in both the tempo and direction of economic growth over the past two decades, and these differences, along with the underlying policy strategies that produced them, are potentially instructive in any consideration of economic performance in the region.
Risk aversion, intertemporal substitution, and the term structure of interest rates