Sri Lanka’s Garment Industry:Prospects for Agglomeration, Challenges and Implications for Regional Development

The purpose of this paper is to critically assess the relocation of garment industry ‘industrial localization’ from Colombo metropolitan area to suburban areas as a strategy for regional development. The government of Sri Lanka offered various tax incentives, tax holidays and abatements supplemented by market expansion strategies globally for achieving this goal. The advantages of this move is expected through agglomeration benefits forming industrial expansion in major cities in outlying regions, while stimulating rural sector through product differentiation and forming backward and forward linkages in the garment industry. The paper assesses the prospects of the Sri Lanka’s garment industry to achieve the economies of agglomeration and its implications for regional development. The analysis of the factors that attract investment, location of industrial plants and their links to suburban and rural areas are discussed based on various regional modeling theories and tools. Finally, the paper explores the potentials as well as challenges faced by the garments sector in view of its competency as a regional development strategy. It concludes that although some of the necessary conditions are in place the sufficient conditions are yet to be satisfied in order to achieve the regional development goals through localization of the garment industry.