Determinants of regional development disparities in Sri Lanka: an empirical investigation into development trends and issues

Abstract

Introduction

Regional disparity is a highly discussed topic in regional development under spatially unbalanced economic development in terms of unequal resources or income distribution. According to the literature, regional disparities can be classified as social, economic and territorial disparities (Kutscherauer, 2010). Among these different classifications, economic disparity is particularly seen through regional output, employment or income which is quantitative, and with many other qualitative dimensions that are related to living standards of a regional community.

In the Sri Lankan context, the distribution of provincial per capita GDP over the last few decades reveals that inequality is considerably high. It shows that stark regional disparities remain between the Western Province and the other provinces with the former accounting for half of overall economic activity, leading by a wide margin of income share. Sri Lanka implemented the Provincial Council system in 1987 to provide greater autonomy to local governments to take necessary measures to increase the local share of the resources and thereby provincial GDP and employment. However, this measure does not seem to have addressed the main issues effectively. According to Waidyasekera (2005), the Provincial Council system has produced a Centre-biased economic system. Fiscal capacities of provinces are very unequal and there is a wide disparity between the different provincial administrations in terms of revenue performance and expenditure levels, and even in the allocation of grants.

Regional convergence and spatial distribution have gained vast interest among theoretical and empirical academic discourses (Antonescu, 2014). Rey and Montouri (2006) found strong patterns of both global and local spatial autocorrelation throughout their study period, and the magnitude of global spatial autocorrelation was also found to exhibit strong temporal co-movement with regional income dispersion. For Indonesia, Resosudarmo and Vidyattama (2006) observed that despite the existence of regional income disparity, there is conditional regional income per capita growth convergence. And saving of physical capital, trade openness and the contribution of the gas and oil sectors are the determinants of this provincial income per capita in Indonesia.

Although there are many descriptive research publications available regarding the Sri Lankan development disparities across regions, only a few studies focus on policy effectiveness and the significance of strategies implemented so far at sub-national level. This research gap is addressed in this study, and we explore the determinants of regional development disparities in Sri Lanka with more statistical precision. This study focuses on powerful regionally diverse socio economic and cultural factors as determinants of regional development dynamics in Sri Lanka. We expect the results of this research to help a better understanding of regional development imbalances and the required policy corrections.