Regional Development Disparities in Sri Lanka

By Priyanga Dunusinghe

Article published in Ceylon Today

Regional development disparities

One of the main development challenges faced by developing countries is how to address development disparities within the economy. Sri Lanka is not an exception. A number of studies as well as the published data have shown that a sizeable level of disparities exist across provinces in Sri Lanka. Nevertheless, compared to the early years in 2000, Sri Lanka has been able to narrow down regional disparities to some extent though it is not up to the satisfactory level. Table 1 report Gross Domestic Product (GDP) related data by sector and province wise for the years of 2004, 2008, and 2012. By 2000, provinces such as Sabaragamuwa, Uva, and North-Central were predominantlyagri-based economies whereas the Western province showed all the characteristics of a modern economy (a higher services sector GDP share). Over the years, agriculture share in provincial GDP in those provinces has declined, yet, even by 2012, over one-fifth of provincial GDP is derived from the agriculture sector in Uva and Northern provinces. Higher share of agriculture output in provincial GDP suggests that over 60 to 70 per cent of the total workforce engages in agriculture related activities in provinces such as Sabaragamuwa, Uva, Eastern, Northern, and Noth-Central thereby recording relatively higher level of poverty in those regions. For instance, according to Household Income & Expenditure Survey (HIES) 2012/13, poverty in Monaragala is 20.2 per cent whereas in Batticaloa, it is 19.4 perecnt while national poverty level reaching 6.7 per cent. As officials often highlighted, the share of the Western provinces in total GDP has declined from 51 per cent in 2004 to 43 per cent in 2012 indicating that previously underdeveloped regions made some gains during 2004-2012. In many provinces, the shares of industry and services sectors output increased reflecting provinces gradually moving away from agriculture. Between the two years, 2004-2012, GDP shares of all the provinces, other than the Western and Sabaragamuwa, increased though the increase is not uniform. It is quite surprising that the share of Sabaragamuwa province in total GDP remains intact during 2004-2012 period thereby needing some attention for injecting some dynamism. Relative position in terms of GDP per capita has declined in Sabaragamuwa indicating that an average person in Sabaragamuwa is poorer, compared to national average, now compared to his position in 2004 (see Table 1).  

Sri Lanka has witnessed some progress with regard to regional convergence when looking at GDP figures; yet, there is a significant difference between the economic life in the Western province and that of the most of the other provinces. In terms of access to better education, health, transport, and access to decent jobs, there is a wide gap between the Western province and the other provinces. Similarly, level of malnutrition, share of underweighted children, school drop outs remained high in most provinces compared to the Western Provinces and Central Provinces. Share of O/L and A/L passed students and those who received university entrance remained relative low in most of the underdeveloped provinces. All in all, regional development disparities are very visible when one moves out of the Western Province regardless of it gets narrowing down in GDP numbers.

Why do regional disparities matter?

Economic theory argues that it is natural that different regions grow at a different rate due to endowment of productive resources and institutional differentials in regions. However, neoclassical economic theory assumes that such growth differentials fade away in a speedy manner because economic agents are driven by profit motives. Yet, the reality is that regional disparities do exist. What are the consequences of regional disparities?

There are a number of consequences due to high and increasing regional development disparities in a country. Most serious among them is the social unrest. People in underdeveloped regions may feel that they are deprived from the main stream development and they display their dissatisfaction in various forms. In most cases, relative deprivation in development may combine with some religious or racial grievances and culmination of anger leads to religious and/or racial tensions. Literature of economics of civil wars often highlight above factor as one of the reasons that led to some of the long-drawn civil wars.

Similarly, regional development disparities also could result in heavy flow of migrant people to urban centers which in turn getting congested excessively. Most migrants then join the urban informal sector for living, and some time ending up in carrying out illegal businesses. Similarly, there is a heavy costs due to overuse of public provisions such as roads, health facilities, schools, and other public utilities. For instance, currently the Western province rooms for nearly 35 per cent of the total population in Sri Lanka despite being the smallest province in physical size.

Further, uneven distribution of economic activities also could generates negative inter—temporal consequences such as perpetuating poverty and inequality over the years. People living in peripheries find it hard to get out of poverty given the limited economic opportunities available around them and same prospects for their kids lead to wide spread frustration in the society. On the ground of social justice, it is required that people of all social strata receive the benefits of development. Similarly there are a number of other reasons which justify the presence of relatively less development disparities within and between regions.

Causes for regional disparities?

Regional development literature provides several theoretical models in explaining why some regions grow faster than the others. Neoclassical schools argue that level of development in a particular region depends on the decisions made by firms with respect to locating their business activities. According to many businesses want to locate closer to their customers because it enable them to reduce transport costs. Many firms want to locate closers to the commercial and administrative centers since such presence reduce their transaction costs and other type of costs. These decisions result that firms concentrate closer to the capital city thereby witnessing a rapid growth of economic activities around it. The Western province has a number of advantages which attract both physical and human capital thereby growing faster than other regions. However, neoclassical models argue that there is an economic convergence over the time thereby witnessing the spread of economic activities to the areas which initially at a dis-advantage position in attracting both physical and human capital for growth. Firms facing higher costs in urban centers may move to areas where costs of production are relatively low. As a result, theory argues, over long-run, economic convergence would take place.

However, the convergence notion of neoclassical economists has been challenged on several grounds. It is argued that most of lagging regions do not have necessary institutions to initiate economic activities and political economy factors disturb even some of the small scale attempt to breeding economic activities in those regions. Moreover, through the process of cumulative causation, any positive convergence effect is disturbed by the outflow of both physical and human capital from those lagging regions to well-developed regions. It is rare that firms locating in rural underdeveloped areas reinvest their profits in those areas and educated young people want to stay and work in those regions. In majority of cases, we could see the flow of profits and educated youth to urban centers thereby accelerating the process of economic growth in those centers.

Conclusion

Even though Sri Lanka marginally witnessed some convergence of economic activities in recent years, it is not clear to what extent it could be sustained given a greater part of regional economic acceleration is due to public funded investment projects and other public service provisions. As pointed out in a previous article, both local and foreign investments have largely confined to the Western province. International migration and internal migration related remittances have become the bread-winner of the regional economies. Hence, it is imperative to launch a concerted effort give birth to private sector led economic activities in underdeveloped regions. Many governments, including the presence one, made several attempts at conceiving economic activities in under-developed regions, but progress has so far been limited. 

Development means, according to AmartyaSen, the expansion of real freedom. It should consist of three core values; namely (a) ability to meet basic needs, (b) self-esteem (ability to choose), (c) ability to be mobile. If we go by this definition, today only a small fraction of this society enjoys the development. A large number of people fall short of meeting the second and third dimension whereas around 10 per cent of the total population is deprived of all three core components of development. Development is not about numbers, it is about the expansion of real freedom. More specifically, it is about the status in which a person could lead a kind of a life that he or she has reasons to value. Time is right for policy makers to broaden their perspective rather than merely chasing behind GDP targets. 

Table 01: Economic Performance by Provinces
Year	Sector	Western	Southern	Sabaragamuwa	Central	Uva	Eastern	North-Western	Northern Central	Northern	All island
2004	Sectoral output share
	Agriculture	0.03	0.36	0.28	0.33	0.53	0.33	0.23	0.43	0.28	0.18
	Industry	0.32	0.20	0.30	0.17	0.09	0.28	0.31	0.08	0.07	0.27
	Services	0.65	0.44	0.42	0.50	0.38	0.39	0.47	0.49	0.65	0.55
	Provincial GDP share	0.51	0.09	0.06	0.09	0.04	0.05	0.08	0.04	0.03	1.00
	Provincial Per capita GDP Ratio	1.80	0.77	0.68	0.68	0.66	0.69	0.75	0.62	0.50	1.00
2008	Sectoral output share
	Agriculture	0.03	0.17	0.22	0.21	0.32	0.22	0.19	0.30	0.20	0.13
	Industry	0.32	0.30	0.28	0.28	0.21	0.35	0.32	0.21	0.08	0.29
	Services	0.65	0.53	0.50	0.51	0.47	0.43	0.49	0.48	0.72	0.57
	Provincial GDP share	0.45	0.11	0.06	0.10	0.05	0.05	0.10	0.05	0.03	1.00
	Provincial Per capita GDP Ratio	1.59	0.88	0.68	0.76	0.72	0.73	0.88	0.78	0.50	1.00
2012	Sectoral output share
	Agriculture	0.03	0.13	0.18	0.16	0.27	0.19	0.15	0.21	0.20	0.11
	Industry	0.35	0.34	0.27	0.29	0.23	0.29	0.30	0.25	0.24	0.32
	Services	0.62	0.53	0.55	0.55	0.49	0.52	0.55	0.54	0.57	0.57
	Provincial GDP share	0.43	0.11	0.06	0.10	0.05	0.06	0.10	0.05	0.04	1.00
	Provincial Per capita GDP Ratio	1.51	0.95	0.65	0.78	0.73	0.82	0.82	0.75	0.77	1.00