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Ceylon has experienced a long period of export growth. Although export expansion led to a rise in G.N.P., there is not much indication that export expansion alone was sufficient to cause a sustained and general increase of per capita incomes. Per capita G.N.P. is estimated to have risen at the rate of 1.1 per cent per annum between 1926 and 1945. Trade also had only a limited effect in diversifying Ceylon's economic structure. Growth appeared to be confined to exports and immediately ancillary services. The late 1940's ushered in a new era with the grant of Independence. Growth in per capita G.N.P. accelerated from 1947 to 4.0 per cent per annum and was accompanied by an expansion of domestic agriculture and industry despite the fact that Ceylon also experienced a population boom since 1947. Why did exports fail to operate as a leading sector in the particular case of Ceylon? The problem is approached by an examination of the following relevant factors: The historical background and the opening up of the economy to trade comprising an investigation of the impact of coffee plantations; some aspects of the production functions of export industries relevant to determining the magnitude of foreign exchange earnings, share of locally retained income; the scope for backward, forward and final demand linkages; the causes for inadequate response as well as the factors responsible for the accleration in growth in later years. A theory which states that the nature of the production functions of export industries has a direct bearing on the extent to which the stimulus from exports leads to the development of related sectors would be relevant to almost any underdeveloped export economy in which foreign trade plays a significant role. Other factors, however, such as the shortage of capital combined with the lack of credit facilities, the free availability of imports and inadequate infant industry protection, a land-based value system and the negative role of the government vis-a-vis domestic agriculture and industry seem to have been major impediments to diversification around the export base. Acceleration in economic growth and a greater degree of diversification in the economic structure of Ceylon in the post-Independence period appear to be connected with government policy, initiative and assistance. / Arts, Faculty of / Vancouver School of Economics / Graduate

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