PIERS 2020

Permanent URI for this collectionhttps://ir.lib.pdn.ac.lk/handle/20.500.14444/2911

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A Silver lining in the dark clouds : stimulating economic growth by promoting tea-based radical innovations in Sri Lanka
(University of Peradeniya, Sri Lanka, 2020) Pilapitiya, H.M.C.G.; De Silva, Saliya
Introduction : Scientific evidence has proved anti-viral, anti-carcinogenic and anti-diabetic properties in tea (Camellia sinensis) due to the presence of high levels of antioxidants (Modder et.al, 2002). However, the major tea producing countries including Sri Lanka paid less attention to such properties until the covid-19 pandemic hit the world boosting demand for black tea in Sri Lanka with a FOB price hike of 15%. In 2018, Sri Lanka was the third largest tea exporter in the world, accounting for 14.7% of total global tea exports. Nearly 60% of this tea was exported in primary processed bulk form. Bulk tea is sold at lower prices than value-added tea forms. For instance, in 2018, the average price of Sri Lankan bulk tea was 4.01 US$/kg, while the average prices for tea bags and tea packets were 8.18 US$/kg and 4.47 US$/kg respectively. During the last five years (2014-2018) Sri Lanka earned only 4.83 US$/kg, comparatively lower than non-tea producing countries such as Poland, which earned US$10.13/kg; Germany.US$9.55/kg; and the UK,US$7.18/kg). These developed nations were already capitalizing on producing tea-based innovations (e.g. confectionaries, tea wine, pharmaceuticals and cosmetics in Japan, Poland, Germany, and UK) using raw materials mostly imported from tea producing countries such as Sri Lanka (Koch et al., 2019). We see this as a missed opportunity for tea producing countries. Product innovations based on tea can be categorized basically into two types: 1) incremental innovations (e.g. - flavoring, bagging, packeting) and 2) radical innovations (tea concentrate, tea cordial, tea-based confectionary). Innovation has two basic dynamic impacts; 1) make upward shift in the production function, and 2) increase economic efficiency for the industry as a whole due to creative destruction (Baumor 2002; as cited by Sengupta, 2014). This study is based on resource-based view of innovation (Lockett et al., 2001) and social cognitive factors of innovation (Wood et al., 1989). Empirical findings on determinants of radical innovations in food and beverage industry are mostly based on the US and Europe limiting the practical implementation to an industry in developing countries. Therefore, this study aims to contribute to minimize this research gap.
The Twin Deficits Hypothesis in Sri Lanka: An Econometric Analysis
(University of Peradeniya, Sri Lanka, 2020) Shifaniya, A.J. F.; Rajeswaran, T.
Introduction : The Twin Deficits Hypothesis (TDH) states that a government budget deficit (BD) leads to current account deficit (CAD) in an open economy (Salvatore, 2006). High BD, by leading to higher interest rates would in turn attract capital inflows and thereby cause an appreciation of the exchange rate. This will make exports more expensive and imports cheaper, thereby worsening the trade deficit, which is the major component in the CAD. In the economics literature, two prime approaches are used to explore the relationship between the CAD and BD of a country: the Keynesian proposition and the Ricardian Equivalence Hypothesis (REH). Based on the Mundell-Fleming framework, the Keynesian view asserts that BD has a statistically significant impact on CAD; there exists a unidirectional causality that runs from BD to CAD. By contrast, the REH posits that a cause and effect relationship does not exist between the two deficits. But, these are not the only posible outcomes between the two deficits. A bi-directional causality between the two deficits could also exist. For a long period of time, Sri Lanka has experienced persistently high BD as well as CAD. The COVID-19 is likely to further exacerbate the highly vulnerable fiscal and external financial situation of Sri Lankan economy. The anti-COVID-19 measures have lowered economic activities and would further reduce fiscal revenues. The recently announced import restrictions will also reduce the import tax revenues. On the other hand, government expenditure will increase due to additional expenditure incurred on anti-COVID-19 efforts including cash payouts to the affected people. The Export Development Board has estimated that the export of goods and services will drop by $ 7 billion in 2020. The CAD of Sri Lanka’s balance of payments is likely to increase from $ 3 billion to $ 6 billion - $ 7 billion (www.ft.lk). These twin deficits cause macroeconomic imbalances and indebtedness. Hence, this study attempts to examine the relationship between CAD and BD. The findings of the study are expected to guide policymakers to formulate fiscal and monetary policies to avert further BD and CAD. Saleh et al. (2005) and Sivarajasingham and Balamurali (2011) examined TDH for Sri Lanka only by focusing on the relationship between current account balance (CAB) and BD. Therefore, this study attempts to examine the TDH of Sri Lanka including important variables such as interest rate and exchange rate, which directly influence the twin deficits process.
A Political Economic Analysis of the Sri Lanka-Singapore Free Trade Agreement
(University of Peradeniya, Sri Lanka, 2020) Bandara, A.S.G.S.; Wijerathna, K.D.M.S.B.
Introduction : Today, the future of globalization has become the world's most powerful ideology over the past few decades. At a time, when the Western world is stuck in a transitional period of deciding whether to move away from neo- liberalism with globalization or move forward with it, Sri Lanka's current foreign trade policy helps to make some decisions regarding the economic conditions. Sri Lanka enters into international trade agreements with other countries in accordance with the General Agreement on Tariffs and Trade (GATT) and the General Agreement on Trade and Services (GATS) agreements enacted within the WTO mechanism. Currently, bilateral and multilateral trade agreements have been signed with the objective of enhancing Foreign Direct Investment (FDI) in Sri Lanka, linking global products and values, promoting trade between countries and enhancing economic cooperation. They are the South Asian Free Trade Agreement (SAFTA), the Indo Sri Lanka Free Trade Agreement (ISFTA), the Sri Lanka-Pakistan Free Trade Agreement (SPFTA), the Multilateral Sectorial Free Trade Agreement for Technical and Economic Cooperation in the Bay of Bengal (BIMSTEC) and the Sri Lanka-Singapore Free Trade Agreement (SLSFTA). Free Trade Agreements (FTAs) have already been signed by Sri Lanka. Various parties have expressed varying views on the Sri Lanka- Singapore Free Trade Agreement. This agreement is set to take Sri Lanka to a critical juncture in the economy of South Asia. It is the first free trade agreement signed by Sri Lanka in ten years, and is the first comprehensive free trade agreement signed by Sri Lanka, including trade in goods and services. It is also Sri Lanka's first free trade agreement with a Southeast Asian country. The agreement is primarily for service investment, sanitation and biometric operations, removal of technical barriers to trade, trade assistance and dispute resolution, provision of customs relations and trade facilities, economic and technical cooperation, government planning, e-commerce and intellectual property rights. Singapore is Sri Lanka's 8th largest trading partner, according to the 2018 Central Bank report. In terms of commodity trade, Singapore is not a highly important export market for Sri Lanka. At present Sri Lanka exports to Singapore only parts for electrical and electronics manufacturing, machinery, minerals, apparel, food and beverages and tobacco. The agreement opens up more opportunities for Sri Lanka to export men's T-shirts and women's clothing, jersey, rubber tires, special men’s wear, pepper, light utensils, electric ovens, vulcanized rubber products, gemstones and semi-precious stones. Singapore is currently the 7th largest investor in Sri Lanka. More than 119 Singaporean companies currently operating in Sri Lanka have invested about US $ 658 million in Sri Lanka from 2005 to the third quarter of 2017 (Central Bank of Sri Lanka, 2018). Singapore has invested in IT, real estate, manufacturing, construction, renewable energy and pharmaceuticals. Although the primary objectives of the Sri Lanka-Singapore Free Trade Agreement are to attract foreign direct investment to Sri Lanka's manufacturing and services sectors, and to engage with global product and value chains, many have expressed a number of critical views on the matter. Some of those critical views are the impact on local industrialists, the risk of losing government tax revenue, and whether foreigners can come to work in the country. In this context, it is a timely necessity to analyze what its objectives really are under a political-economic approach.
The Impact of External Debt on Foreign Direct Investment in Sri Lanka
(University of Peradeniya, Sri Lanka, 2020) Weerakoon, A.M.K.; Vijesandiran, S.
Introduction : Foreign Direct Investment (FDI) is an important avenue to earn foreign exchange, resolve the external debt problem, and promote economic growth. The literature has revealed that FDI is influenced mainly by external debt and also other factors such as inflation rate, interest rate, and trade openness (Muzurura, 2016). A high level of external debt results in harmful effects on an economy by reallocating FDI from productive investment to resolving external debt issues (Krugman, 1988). Hence, the relationship between external debt and FDI is considered an important factor since the developing countries are highly dependent on foreign debt to accelerate economic growth and fulfill their development needs (Mugambi, 2016). In Sri Lanka, the Government’s debt to GDP ratio was increased by 76.9% while FDI was increased by only 17.3% in 2017 while in 2018, the foreign debt recorded one of the largest increases since 1977 (Central Bank of Sri Lanka, 2018). It is noted that attracting FDI is an essential strategy to earn foreign reserves to pay the external debt and solve the public debt problem in Sri Lanka. Therefore, finding solutions to maintain public debt and attract FDI becomes an issue of high concern in the country. However, the relationship between external debt and FDI has not been explored widely in Sri Lanka. Hence, this research attempts to examine the impact of external debt on FDI and expected to provide a very important role in the current public debt problem as well as FDI flows in Sri Lanka.
The Impact of the Organizational Mission Drift on its Employee Effort
(University of Peradeniya, Sri Lanka, 2020) Samaranayake, D.I.J.; Banuri, S.
Introduction : The mission statement of an organization highlights the uniqueness and difference from the other organizations in society. It appears as a way to clarify the role of an organization and equally as a method to attract employees (Chu and Luke, 2012). Although, one of the inherent challenges of operating as an organization in modern business is the maintenance of its original mission. Rapid changes in the external environment encourage organizations to drift from their original mission to a broader scope of activities. Mission drift can be identified as a noticeable movement of organizational main objectives and goals towards a new direction (Ebrahim et al., 2014; Mader and Sabro, 2019). According to Minkoff and Powell (2006), this movement represents a deviation of an organization’s resources and activities in two modes. They are the administrative and programmatic drifts. Such movements are noticeable in organizations such as social enterprises, non-profit organizations, healthcare, and educational bodies. For instance, the social enterprises such as microfinance institutions experienced mission drifts (Jaquette, 2013; Armendariz and Szafarz, 2009). Also, the literature encourages to observe whether such mission drifts cause less engagement and less effort by its key stakeholders. This can occur due to mismatches in the pro-sociality, meaningfulness, and the expectations of the mission they are engaged in (Carpenter and Gong, 2016; Smith, 2016; Banuri and Keefer, 2016). Therefore, the study designs to observe the impact of the mission drift of an organization on its employee’s effort. For that, the study introduces a model to observe such impact through an experiment using the modified version of “dictator game” and “real effort tasks”.
An Empirical Analysis of the Impact of Fiscal Policy on Stock and Bond Markets in Sri Lanka
(University of Peradeniya, Sri Lanka, 2020) Dissanayaka, D.M.S.M.
Introduction: The world’s financial market transactions have increased with a busy and modern life style. In particular, the stock market and the bond market play a key role in establishing a correlation between financial market transactions. Therefore, more and more investors have shown their interest in stock and bond market activities. When focusing on the behaviour of the above markets, deep understanding of the volatility or fluctuations of the markets is important. These markets response to changes in key macro variables, such as inflation, interest rate, monetary policy, money supply and Foreign Direct Investment, etc. Yet, there is no clear understanding of which factors cause the stock and bond markets to actually fluctuate. Some studies give priority to monetary rather than fiscal policy. Some early studies identified fiscal policy as a neglected factor (Sprinkel, 1964), and subsequent studies show that fiscal policy also has a significant impact on stock market volatility (Lapodis, 2009). In particular, using a theoretical framework, Tobin has explained how monetary policy as well as fiscal policy influence stock market volatility. He states that the growth of money supply and budget deficits create impacts on the stock market ^Tobin, 1960&. Some empirical evidence shows that the bond market clashes with public sector debt. Government expenditure shocks are expected to be positive for stock and bond yields (Tavares and Valkanow, 2001). They found that fiscal policy generates some impacts on the volatility of both stock and bond markets. Many previous studies have identified that monetary policy has a direct relationship, and fiscal policy an indirect relationship with capital markets. Given this background, it is clear that only a few studies have focused on investigating the impact of fiscal policy on the stock market and the bond market; thus opening up an avenue to further examine the possible impacts of fiscal policy on capital market behavior.
Impact of COVID 19 on Own Account Workers in Sri Lanka
(University of Peradeniya, Sri Lanka, 2020) Ranawaka, D.N.; Thennakoon, I.S.
Introduction : Entrepreneurs (hereafter defined as own account workers) are vital to the economy especially in the case of poverty alleviation and reducing inequalities in a post-war climate in a country. After slow recovery from the Easter Sunday attacks, COVID 19 is like a second wave of tsunami to the Sri Lankan economy. With a workforce of 8.6 million consisting of 64.5% males and 35.5% females (DCS, 2020), the economy faces a setback due to the onset of COVID 19. According to the World Economic Forum, start-ups had terminated more than 70% of their full-time employee contracts during the pandemic and more than 40% of the start-ups will have cash to run the business only for just less than three months (WEF, 2020). While the global lens indicates insecurity of the startups and small-scale businesses, the Centre for Poverty Analysis (CEPA) attempts to investigate the national level impact on own-account workers during the time of COVID 19 lockdown. CEPA studied the livelihoods of 400+ households across 23 districts to understand the effects of COVID 19 on them. We were unable to make the survey representative due to data collection restrictions. In this paper, we will be analyzing the impact of COVID 19 on own account workers at three levels; the economic impact, COVID 19 and its impact on household activities and perceptions on economic burden in the household.
Economic Implications of Unpaid Domestic and Care Work of Women
(University of Peradeniya, Sri Lanka, 2020) Sreenthaj, Irshad
Introduction : There is a bilateral relationship between economic growth and gender in/equality. That is, rising economic growth could potentially reduce gender inequality in terms of access to formal employment, gaps in pay, etc. Similarly, shrinking gender inequality (in terms of access to formal employment, gaps in pay, etc.) could potentially boost economic growth as well (Cuberes and Teignier, 2014). The services sector has hugely contributed to the rise in the labour force participation of women due to structural changes in the economy. Economic models estimate that the rise in service sector accounted for 44% of the increase in the hours worked by women and 11% decrease in the hours worked by men (Ngai and Petrongolo, 2013). Galor and Weil (1996) demonstrate that generally women have comparative advantage in the mental labour (brain) output whereas men have comparative advantage in the physical labour (brawn) output and therefore the rise in capital intensity of production as a result of economic growth raises the relative wage of women. Moreover, the higher wages of women and the consequent lower population growth result in greater capital per worker and higher output growth. Although gaps in gender inequality (in the labour market, political representation, and intra-household bargaining power) is faster in the developing countries compared to the developed countries in the past, it is still very high especially in the Middle East, North Africa, and South Asia including in Sri Lanka (Klasen and Lamanna, 2009). The gender differences in the labour market are reflected not only in terms of access to jobs but also in terms of differences in productivity and earnings (World Bank 2012). Women who play multiple roles within households and society endure an opportunity cost for working outside the home for a wage. Thus, potential earnings and productivity are also critical factors that could affect labour force participation of women. Therefore, instead of jobs per se, the nature and effects of jobs available to women are what would determine labour force participation by women. Gender differences in the use of time and access to inputs influence productivity and earnings of women entrepreneurs, farmers, or workers alike (World Bank, 2012). Similarly, education per se is not going to lift women out of inequality and dis-empowerment. For example, although women are the majority who enter the public universities in Sri Lanka, the bulk of them study arts, commerce, and humanities subjects that have very low employability (and low pay) in the labour market, especially in the private sector. In spite of sustained economic growth and significant improvements in access to education of women in the Middle East and North Africa and South Asia, the labour force participation rates of women in these sub-regions have been very low (26% and 35% respectively). In contrast, East Asia (65%) and Sub Saharan Africa (61%) have the highest among developing countries (World Bank, 2012). However, in certain circumstances and senses armed conflict could transform the gender dynamics in favor of women in traditional conservative societies like Somalia. The informal sector jobs that are dominated by women world over, the unpaid household care work of women, and care economy are the key attention of economists and policymakers at this time of COVID-19 pandemic (Alon, Doepke, Olmstead-Rumsey, and Tertilt, 2020). Although this research study was conducted prior to the pandemic and the resultant lockdown and curfew, its relevance is all the more during this time of public health emergency, viz. COVID-19 pandemic, and its aftermath. According to recent estimation, world’s women aged 15 and above are devoting 12.5 billion hours per day for care work without any remuneration and many more hours for underpaid care work (Coffey et al., 2020). In all the countries of the world, the annual unpaid care work of women aged 15 and over is estimated to be at least 10.8 trillion dollars, which is three times the size of the global technology industries (Coffey et al., 2020). The traditional measures of the economy do not account for the unpaid household and care work of women. However, unpaid household work is closely related to well-being.
The impact of COVID-19 on Tourism sector MSEs and its Resilience: A Case Study of Arugam Bay- Sri Lanka.
(University of Peradeniya, Sri Lanka, 2020) Sujeeva, J.
Introduction : Micro and Small-scale enterprises (MSEs) play a significant role in promoting growth and development of tourism in Sri Lanka. As per the Department of Census and Statistics (DCS) Economic Census 2013/14, the MSEs11 account for over 95 percent of the total enterprises in accommodation and food services sub-sector. Its contribution to employment and value added in the same sector is around 70 and 50 percent respectively. Moreover, tourism sector is the 3rd highest foreign exchange earner and accounts for about 4-5 percent of GDP. Undoubtedly, the MSEs operating in tourism value chain is a major in terms of value added, foreign exchange earnings and job creation. There is a good body of knowledge on the impact of COVID-19 on Sri Lanka at national and sub-sector level based on secondary data.12 However, there is hardly any work at sub-sector level based on firm level data on MSEs and this study is an attempt to fill this literature gap in tourism sector MSEs. Arugam Bay (AB) is well-known as one of world’s best ten surf points in 2010 (Lonely Planet, 2009) located in the east coast of the Sri Lanka and is made up of several right-hand points for surfing that only work from May to November. It attracts guests from various parts of the world and provides livelihood for fishing communities characterized by high unemployment, underemployment, poverty and inequity. The impact of COVID-19 on 10 The advice and guidance provided by Prof. Sunil Chandrasiri throughout the study is gratefully acknowledged. Helpful comments and suggestions by two anonymous referees are also thankfully acknowledged. 11 Micro enterprises with less than 10 employees and Small-scale enterprises with 10-50 employees. Source: The Ministry of Industry and Commerce (MIC), National Policy Framework for Small Medium Enterprise (SME) Development (undated) 12 For a review of existing body of work on COVID-19 see Chandrasiri et al. (2020) and references cited therein. tourism and hospitality is unprecedented. It has led to devastating implications on tourism sector MSEs operating in economically backward areas such as AB. There is a debate on MSE’s ability to face the challenges of COVID-19. Can they survive through the crisis or will they go out of business? What is the role of the government in helping MSEs during the post-COVID-19 economic recovery? The present study is designed to engage in this debate concentrating on two main research issues: (a) what is the immediate economic impact of COVID-19 on tourism sector MSEs? (b) what is the recovery capacity of MSEs in tourism during the post-lockdown period?
Cost Pricing of Private versus Government Biochemistry Laboratory Tests in Sri Lanka
(University of Peradeniya, Sri Lanka, 2020) Hettiarachchi, K. H. I. S.; Dorabawila, S. S. K. B. M.; Dissanayake, D.
Introduction : Previous studies have shown that laboratory services play a major role in the health care and that laboratory services account for about 10% of the total expenditure on the health care (Mouseli et. al., 2017). Presently, total health care expenditure is continually increasing around the world as well as Sri Lanka. From the ever increasing total expenditure about 10% of it will always be for laboratory services. In this context, it is a timely need to determine the true cost of government and private laboratory tests in Sri Lanka. Therefore, this study will primarily study the cost pricing of private versus government biochemistry laboratory tests in Sri Lanka. According to the 2018, Annual Report of the Central Bank of Sri Lanka, the total expenditure on government health services is 13.7% of the total government consumption expenditure and the private sector expenditure on health services is 2.5% of the total private consumption expenditure. Furthermore, the National Health Report (2013) states that the 2013 total health expenditure of Sri Lanka was Rs.260 billion, which is 3.24% as a percentage of Gross Domestic Production and per capita health expenditure was Rs.12,636. According to the Sri Lanka Health Account, National Health Expenditure Report 1990-2016, the total health expenditure in 2016 was Rs. 398 billion and the per capita health expenditure was Rs.18,880 (Institute for health policy, 2018). This data reveals that over time health expenditure on healthcare in Sri Lanka has been steadily increasing. As noted earlier, many foreign studies have identified that laboratory services play a major role in a health care and about 10% of the total health care expenditure is spent on laboratory services. Furthermore, 70% or more of medical decisions are based on the result of laboratory tests (Mouseli et. al., 2017). As a result, there is a trend of increasing demand for laboratory services in future. Especially, when a pandemic like Covid-19 necessitates continuous laboratory testing which are highly expensive. In the United State alone, over 7 billion laboratory tests are performed annually (Jackson, 2015). When the price of a product is determined by balancing the demand and supply of the product, one of the ways that a producer sets the price by determining the price based on the cost of production. Therefore, it is important to identify the cost of laboratory tests. Barker and Huang (1983) identify the importance of the true cost of a laboratory service as “A better knowledge of the actual costs is required for the promotion of more rational utilization and better appreciation of health laboratory services by medical and public health workers”. The above statement shows the importance by determining the true cost of laboratory tests. The cost of production of a good or service is calculated by adding the cost of inputs required to produce the goods or services. But from an economic point of view, costs should include opportunity costs such as time cost of patients, in addition to direct and indirect costs for inputs. Therefore, there is a timely need to determine the true cost of government and private laboratory tests in Sri Lanka.
The Dynamic and Causal Relationship between Tourism and Economic Growth in Sri Lanka
(University of Peradeniya, Sri Lanka, 2020) Kumudhini, K.
Introduction : The tourism industry has grown to be one of the largest industries and fastest growing economic sectors in the world. Tourism is considered as a most powerful tool and an economic activity to trigger economic growth in developing countries. Over the years tourism has contributed towards the generation of remittances and creating of job opportunities by using local resources. Tourism accounts for 10.4% of global GDP and 313 million jobs globally or 9.9% of total employment in 2018 (World Bank Report, 2019). Acknowledging these facts, countries in general are heavily focused on tourism as an option for their sustainable development. As a developing country, Sri Lanka has given high priority to the tourism sector as a result; this sector is growing rapidly as a key sector in the economy. Sri Lanka has been a popular place of attraction for foreign travelers because of its uniqueness, strategic location, natural environment, cultural diversity, wildlife sanctuaries, sandy white beaches, underwater life that surrounds the island and warm climate making visitors comfortable and attracted to it. In 2018, Lanka received over 2.3 million international visits, generating revenue of approximately US $ 4.3 billion from tourism. In 2019, contribution of travel and tourism to GDP for Sri Lanka was 12.6 %. It increased from 6 % in 2000 to 12.6 % in 2019 growing at an average annual rate of 4.28 (Sri Lanka Tourism Development Authority, 2019). In 2017, travel and tourism generated 404,000 direct jobs, equal to 5.1% of national employment (Central Bank of Sri Lanka, 2019). This has grown by 3.7% in 2018 to 419,500 jobs – 5.3% of total employment. Several empirical studies have explored the relationship between tourism and economic growth in emerging economies (King and Gamage, 1994). Wickremasinghe (2006) examines the causal relationship between tourism and economic growth using an error correction model and variance decomposition analysis. But though tourism is considered as one of the major contributing sectors to economic growth in Sri Lanka, the relationship has not been established empirically using econometric analysis. Also, the causal relationship between tourism and economic growth has not been explored statistically for the period 1971-2019 in the Sri Lankan context. Therefore this research is an attempt to fill this gap.
Impact of Economic Growth on Income inequality: A Case Study of Sri Lanka
(University of Peradeniya, Sri Lanka, 2020) Kariyapperuma, K.A.N.I.
Introduction : Economic growth and distribution of income can be recognized as two important issues, which are concerned with economic development. Although the poverty rate of Sri Lanka is a single digit value, the GINI coefficient value reflects relatively high income inequality. At the same time, even though Sri Lanka belongs to the middle income category2, the overall economic growth rate is unstable and not sustained. In addition, regional and provincial poverty levels depict disparities of income distribution at a micro scale. Therefore it is important to understand the growth-income inequality nexus. Income inequality in economics is the significant disparity in the distribution of income between individuals, groups, populations, social classes, or countries. This territory is staked out by founding scholars. The seminal work of Kuznets (1955) is both important and controversial. He asserted that inequality was a consequence – though only temporary – of economic growth. In this respect, inequality was seen as increasing in the early stage of the economic development process before decreasing with further development. The existing empirical studies found a positive (e.g., Rubin and Segal 2015; Wahiba and Weriemmi 2014; Lundberg and Squire 2003), a negative (e.g., Majumdarand Partridge 2009; Nissim 2007) and mixed (e.g., Huang et al. 2015; Chambers 2010) relationship between economic growth and income inequality. So in most cases, the nature of the relationship between income inequality and growth is dubious at best. Especially for developing countries, rising per 2 Sri Lanka had been elevated to the status of an upper middle-income country in July 2019 and again down rated as lower middle income country in July 2020. capita income induces more inequality, which retards growth in this range. By contrast, in developed countries, rising per capita income tends to reduce inequality, which lowers growth in this range (Barro, 1990). Moreover, the relationship may differ depending on the region or the size of an economy. Fallah and Partridge (2007) show that the impact of inequality on economic growth is opposite in rural and urban settings. In considering the Sri Lankan literature an uncertain relationship is observed due to the policy changes in the country (Rathnayaka, 2014). Also, Sri Lanka has been experiencing different phrases of income inequality; 1963-1973 low income inequality with welfarism policies, 1973-1987 high income inequality and 1987-1997 low income inequality (Karunarathne, 2000). Related studies on other Asian countries prove that economic growth impacts on income inequality significantly and positively. Further, Kakwani (1988) highlights that economic development and income inequalities are positively related in Sri Lanka, with the turning point of the Kuznets inverted U shape hard to find, or occurring at the last stage of development. In sum, studies highlights that there is no consensus on the sign and strength of the relationship.
Overcoming Economic Impact of Rainfall Variability in Mahailuppallama by Using Gamma Distribution
(University of Peradeniya, Sri Lanka, 2020) Kuruppuarachchi, K.A.N.L.; Gunaratne, L.H.P.; Premalal, K.H.M.S.
Introduction : Climate change is a major factor that significantly affects the world economy with extreme changes in climatic variables such as precipitation, temperature, winds, relative humidity etc. Agriculture is an economic endeavor that depends on both climatic and weather situations on which its extremes direct to failure in agronomic activities switching deficit in the economy. Parallel circumstance exists in Sri Lanka, where the primary income source is agriculture. With the high geographic and climatic variability in Sri Lanka, different kinds of crops are cultivated in different regions, harmonizing their unique characteristics of topography and climate. The mean annual rainfall in Sri Lanka varies from under 900mm to over 5000mm from the driest part to the wettest part. The 3 climatic zones that have been classified according to the mean annual rainfall are further divided into 46 Agro-ecological regions having different amount of rainfall. Crops, cultivars and implementation of agronomic practices are planned as per the forecast climatic variables all over the country. In addition to that, irrigation planning is executed mainly considering rainfall where irrigated farming is performed. Thus, rainfall variability is crucial in agricultural activity, water management, food security and energy production. According to the annual reports of Central Bank of Sri Lanka from 2010 to 2019, paddy production in yala season of 2012, 2014, 2017, 2018 and 2019 has declined due to the drought conditions existing in those years whereas it has increased in 2010, 2011, 2013, 2015, 2016 and 2018 due to the favorable weather conditions and proper irrigation plannning. It generates fluctuations in the economy since mainly drought conditions prevail in the Dry Zone, where paddy production is concentrated in Sri Lanka. Therefore, realization of rainfall distribution is vital in order to accomplish proper policy planning, decision making and risk management. Hence, location specific range and likelihood of rainfall is essential in achieving those strategies. Therefore, modeling of rainfall variability with probability distribution is a useful tool. The information regarding rainfall accumulation in time and space for an area and the foundation for fitting and testing distribution models is given by historical rainfall data (Husak et al., 2007). Along with that the gamma distribution has been recommended as the best fitted distribution in order to describe the annual, monthly or seasonal rainfall (Aksoy, 1999; Sen and Eljadid, 1999; Husak et al., 2007; Sivajothi and Karthikeyan, 2016).
The Deepening Crisis of Global Capitalism in the Age of COVID-19: Why Marx was Right?
(University of Peradeniya, Sri Lanka, 2020) Rajapaksha, Kalpa
Introduction : Any crisis provides an opportunity to learn. But what is the class nature of the learning process? The current global crisis triggered by the COVID-19 pandemic is not different at all from that political historicity. However, the recent global political experience bears sufficient evidence that the global capitalist class and mainstream economics are not ready to learn – they tend to repeat the history, as Marx said, first as a tragedy then as a farce. While the global capitalist class converts history into opportunism and its ultimate survival method – profitability, mainstream neoclassical economics keeps itself occupied with producing ‘more rigorous’ mathematico-deductive models and theories to justify the same historical process. The present debate of mainstream economics on the crisis dedicates its role to fulfill two main objectives, which as this study will demonstrate are equally false. Firstly, it attempts to highlight that the present crisis and its deepening nature were caused by the global pandemic. In other words, the argument goes, prior to the pandemic global capitalism was vibrant and healthy. Secondly, it attempts to highlight that the recovery methods that are identical to the 2008 crisis, consisting of austerity measures, financialization, tax-cuts to the top 1% and dispossession etc. should be instrumented in order to attain recovery from the current crisis. This study was conducted in order to challenge these views and to present a Marxist alternative.
Cost Benefit Analysis of Solar Power Electricity Consumption in Katugasthota Municipal Area
(University of Peradeniya, Sri Lanka, 2020) Bandara, M. M. D. V.; Karunarathna, Muditha
Introduction : Solar powered systems are becoming more prevalent in many countries and it is one of the most important renewable energy sources that has been gaining increased attention in recent years (Khaligh, 2010). Solar energy is used worldwide and is increasingly popular for generating electricity or heating and desalinating water. Most countries have decided to aid consumers choosing to invest in solar in the hopes of supporting the “green” or sustainability movement. Solar energy is clean and free of emissions, which is beneficial for the environment, as it does not produce pollutants or by-products harmful to nature (Robert et al., 2010). Sri Lanka should secure its energy future by focusing on the development and adoption of indigenous, renewable sources of energy to meet this growing demand and reduce the economic burden of imports. Accordingly, this study investigates the effectiveness of solar power electricity investment through a cost-benefit analysis and the calculation of two measurements of net present values (NPV) and internal rate of return (IRR) using data gathered from 100 households in the Katugasthota municipal area.
An Economic Evaluation of Fertilizer Subsidy on Paddy Production in Sri Lanka
(University of Peradeniya, Sri Lanka, 2020) Sisirakumara, M. P. S. S.; Karunarathna, Muditha; Athukorala, Wasantha
Introduction : The rice sector plays an important role in the domestic agriculture of Sri Lanka. During the period 2000-2019, annual average contribution of rice farming to agricultural GDP of the country was 20 per cent (Central Bank of Sri Lanka, 2019). The rice sector had been facing unprecedented challenges in Sri Lanka since the early 1960s, such as stagnant yield, diminishing income due to escalation of costs of production, and abandonment of rice lands (Athukorala et al. 2012). These issues were mainly due to low productivity. From the late 1960s to early 1970s the government identified the need to increase productivity of rice farming. Subsidies played an important role in increasing productivity. Besides food security, the government subsidy programmes in a developing country also targets poverty alleviation, rural development, and increased revenue. The Government of Sri Lanka has entered the chemical fertilizer market since 1962 with the introduction of a fertilizer subsidy scheme. At present, paddy cultivation in Sri Lanka largely depends on subsidies which are not highlighted in policy discussions. Fertilizer subsidy is the most controversial input subsidy program provided for paddy farming. It was initiated in 1962 with the introduction of High Yielding Varieties (HIVs) during the Green Revolution. At present fertilizer subsidies on paddy farming account approximately 50% of the overall use of chemical fertilizer in the country and it is approximately Rs. 40 billion in value (Central Bank of Sri Lanka 2018). Given this background, this study focused on identifying the relative advantage of the fertilizer subsidy scheme of paddy in Sri Lanka.
Institutional Determinants of Domestic Investment: A GMM Panel Data Analysis
(University of Peradeniya, Sri Lanka, 2020) Parsa, Mirwais; Datta, Soumya
Introduction : Investment is a significant component of the aggregate demand that plays a vital role in the growth of output, employment, and productivity in the long- run. Over recent decades, the cross country variations in investment have been remarkable. As noted in Lim (2014), between 1980 and 2010, the variability in the rate of gross fixed capital formation ranged between 1 to 90 percent of GDP worldwide, the greater part of which has come from the developing countries that also exhibit higher diversity in terms of their institutional structures. The conventional belief is that the accumulation of investment funds, labor growth, and productivity rise explain the growth rate of economies. The role of a sound institutional environment as an essential pre-condition to providing a healthy climate for factor accumulation and productivity growth is mostly neglected in the neoclassical theories of economic growth. However, recently, a big strand of literature emerged that has broadly acknowledged the importance of institutions for technological progress and innovation, FDI, financial development and more extensively for economic growth. A dynamic analysis of the impact of institutional quality for factor accumulation is far less discussed in the literature that demands further investigations.
Road Traffic Congestion Induced CO2 Emission: Evidence from Kandy City in Sri Lanka
(University of Peradeniya, Sri Lanka, 2020) Karunarathna, Muditha
Transportation plays a significant role in carbon dioxide (CO2) emissions. This paper examines traffic congestion and its impact on CO2 emissions in Kandy city. Data were collected between November and December 2018 using road monitoring surveys which includes vehicle counting and time recording. The results show that cost of extra fuel consumption due to traffic congestion is Rs. 12.94 million during 12 hour day time which account Rs. 4.72 billion per year. The total CO2 emission weight is estimated 263.48 tons per day which is 96,170 tons per year. Approximately 55 % of the total emission is contributed by the bus, lorry and truck while combined effects of car, cabs, jeep and wagon is more than 27%. The study also identifies the contributing of CO2 emission by diesel, petrol and hybrid vehicle separately in the study area. The results of the study provide the direct evidence on the magnitudes of the unnecessary fuel loss and magnitude of the CO2 emission due to road traffic congestion in Kandy city in Sri Lanka.
An analysis of Household Rice Expenditure Patterns in Urban, Rural and Estate Sectors in Sri Lanka: Using MPE Approach
(University of Peradeniya, Sri Lanka, 2020) Paraneetharan, N.J.C.; Nigel, John; Vinayagathasan, T.
Introduction : Analysis of household food expenditure patterns is considered an important indicator of economic development in a country, especially meaningful in developing countries where the food expenditure account is a relatively large share of household income (Dunne & Edkins, 2005). Marginal Propensity to Expend (MPE) is a tool to analyse household food expenditure pattern. It measures the proportion of any increment of income that the household desires to spend on consumption. MPE indicates the type of relationship between income and expenditure on a particular food item and provides support for Engel’s curve (Haavelmo, 1947). MPE of a food expenditure function shows how households react differently when income changes. This is defined as the ratio of the change in expenditure on a food item to change in household total income. It is simply the slope of the response curve and the marginal response of consumption to changes in income. MPE of food items can be used to compare consumer behavior between sectors and is relevant to judge the pattern of additional demand (Langemeier & Patrick, 1990).
Japanese Technical Intern Training Program: A Way to Develop Human Capital in South East Asia
(University of Peradeniya, Sri Lanka, 2020) Buarapha, Peemmaphat; De Silva, Saliya
Introduction : It is well known that the Asian Newly Industrialized Economies (NIEs) achieved their remarkably fast economic growth through export-oriented policies that led to Foreign Direct Investment (FDI) and acquisition of foreign technology since the 1960s. The other South East Asian countries (hereafter SEACs) also replicated these policies following the Asian NIEs. Japan, due to increasing labor costs, relocated its labor-intensive manufacturing to the Asian NIEs in the early 1960s. During that time Japan was in the second stage of industrial restructuring to catch up with the Western economies. However, after the Yen appreciation in 1985, Japanese export started to decline and lost its competitive situation against the Asian NIEs in consumer electronics. Thus, Japan relocated its manufacturing firms again to low cost SEAC countries, such as Thailand and Indonesia. Even though, these SEACs used similar strategies in developing their own economies as the Asian NIEs like South Korea since the 1960s, they still have not been able to escape from the “Middle Income Trap” (MIT) passing the required amount of GNI per capita (i.e. pass $12,535 GNI p.c. in 2020). One reason why SEACs are still in the MIT lies in their lack of human capital (HC). The foreign firms use various strategies such as retaining tacit knowledge, separating the production process in different countries, in order to keep the secrets by themselves. Like what happened in Asian NIEs, the duty of absorbing foreign knowledge and technology lies upon the host country’s workforce. Therefore, Human Capital Development (HCD) is imperative to increase the absorptive capacity of the host country. One of the ways used by SEACs in recent times for HCD in their home countries is through Japan’s Technical Intern Training Program (TITP). A question arises whether TITP is an effective way of HCD in labor sending SEACs.

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