Bridging gaps for greater economic development

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By 2018-01-14

By Kamal Kandewatta

Economic growth and development are major concerns of any economy, since sustained economic growth that addresses the three pillars of economic development is instrumental to uplifting people's living standards. Due to the significant impact it has on human lives, promoting economic development among nations was one of the main areas of concern in global and local economic agendas.

Even the largest inter-governmental organization, the United Nations, has given priority concern to promoting economic development through its Millennium Development Goals and Sustainable Development Goals (SDGs). With this international level of acceptance for economic development emerged a widespread urge for nations to commit to achieving it.

At present, the need for economic development is not just for the benefit of current generations; it must also be achieved without harming the ability of future generations to meet their needs.

At the global level, countries are classified according to their level of economic development. According to this classification, countries that have achieved higher level of living standards and income levels are classified as Developed countries, while the ones that have relatively low levels of living standards and income levels are classified as Developing countries.
However, if equal distribution of living standards and income levels are taken into consideration, it is a debatable point whether this so-called 'developed and developing countries' system of classification is valid or not.

In general, with sustained economic growth and development, the income level of the people tends to move up; but if this rise in income is limited to a specific group of people in society while others' living conditions remain unchanged, the goals of development will not be achieved. In this kind of situation, the beneficiaries enjoy while the others continue to lead miserable lives.
The unequal distribution of economic activities and wealth in society was one of the vanguard forces in shaping human civilization.
According to American writer Noah Webster, "The causes that destroyed ancient republics are numerous, but in Rome one principal cause was a vast inequality."

Even today, the uneven distribution of economic benefits could create powerful forces against ruling parties and rulers.
For example, in Sri Lanka, the previous president who led the country out of a prolonged war was evacuated of his seat by popular vote. Among many other reasons, such as corruption and nepotism under his control, one key concern of the people of the country at the time was the unequal distribution of economic activities. This is because it was evident that urban development activities were prioritized and infrastructure development was centered on the Southern Province, while the burning issues of rural citizens remained unanswered.

Despite these concerns, looking back now, it is up to people to decide if the change delivered any improvement.
As in the case of many developing economies, unequal development in Sri Lankan economy is clearly evident when we consider the disparities of economic activities, income distribution and unemployment levels in the country.
In Sri Lanka, economic activities are basically centralized in urban areas, where all the other facilities such as transport, logistics and easy access to markets are available. According to the Central Bank of Sri Lanka (CBSL), a majority of the country's economic activities are centralized in five provinces, leaving other provinces in isolation.

Provincial Gross Domestic Production (PGDP) data indicates that around 40 per cent of GDP is generated by Sri Lanka's Western province. Compared to previous data, the dominance of the Western province PGDP share in the overall GDP has declined steadily over time.
From 2003-2005, the Western province contributed to around 50 per cent of the GPD on average, whereas from 2006-2009, this dropped to 48 per cent. This further declined to 41 per cent by 2015, indicating a deterioration of the regional disparities in distribution of economic activities in the country.

Despite these improvements, there are still many urgent issues regarding the distribution of economic activities, because provinces such as Northern, Uva and North Central have shown very low contribution to overall GDP. According to CBSL, in 2015, the PGDP share of these three provinces was just around 14.1 per cent, indicating a very low level of economic activities in these provinces.
Compared to 2005, these provinces' participation in economic activities has improved slightly, but these small improvements are insufficient to make any significant difference in the lives of the people living in these areas.
Another notable feature of the regional distribution of economic activities is that the agriculture sector has made a very low contribution to the Western province's PGDP, whereas the sector has made PGDP contributions of more than 10 per cent in all other provinces besides Sabaragamuwa.

In Sri Lanka, around a third of the labour force is in the agriculture sector, contributing to just around eight per cent of GDP. However, the income levels in this sector depend very much on the harvest. In fact, their living conditions are also not secured.
Therefore, people in all other provinces employed in the labour-intensive, low-productive agriculture sector face insecure living conditions.

When the per capita income is considered, the per capita income of the Western province is greater than other provinces and, according to CBSL, the per capita income of the Western province was 1.4 times greater than the national per capita income in 2015, though it has declined marginally compared to the previous year.
Other provinces such as Southern, North Western and North Central have recorded similar income levels, while Northern and Sabaragamuwa have reported the lowest levels of per-capita income.
The distribution of industrial enterprises among the 25 districts of the country showcases the unequal economic opportunities among districts as well. For example, by 2015, a total number of 2,542 industrial enterprises were located in the Colombo district, followed by Gampaha district with 1,070 industrial enterprises.

However, reflecting the uneven distribution of economic activities among districts, relatively isolated districts such as Mannar, Kilinochchi and Mullaitivu have less than ten industrial enterprises in their respective districts, leaving people in those areas no choice other than to move into the low-productive agriculture sector.
Provincial-wise unemployment rate data indicates that people in the Western and North Western provinces have a lower rate of unemployment than those in the rest of the provinces; even lower than the national level of unemployment in the country. Despite this impressive achievement by the Western province, provinces such as Northern and Southern have rates of unemployment higher than the national level.

One of the obvious reasons behind the regional disparities in the country's economic development is locational disadvantage, because most of these provinces and districts that have relatively weak economic contribution are located in isolated areas, where connections with main economic centers is difficult or time-consuming. Therefore people do not know what the economic opportunities are. More often, investors also do not set their operations in such areas because of their poor connectivity to the country's main economic centers.

On the other hand, the Northern Province's low development is not only due to the connectivity issue, but the fact that the Northern Province was subject to the prolonged war. At that time, absolutely no investment was taking place, unlike other provinces where economic activities somehow managed to continue. After the war, this province and other war-affected provinces had to catch up with their peers, but it has to be acknowledged that this is an exercise that will require time.
Also, in the provinces where the agricultural base is considerably high, it is important to redirect people to more productive sectors, rather than allowing the wastage of labour on getting too little output.

However, redirecting people to more productive areas such as manufacturing and construction has been a source of great challenge, because most of these people have grown dependent on various types of compensations and transfers; they don't want to lose these benefits by moving into other sectors even though this would ensure better income levels and living standards for them.
On the other hand, as the Western province holds better economic opportunities, people tend to migrate into cities to find better jobs and living conditions. However, this high level of concentration of people into few economic centers will create complications, such as slums and shanties and the spread of illegal activities; also pushing up urban poverty rates. In turn, these complications will create constraints to economic development itself.

Therefore, it is vital to make sure that the benefits of economic development reach members of society as evenly as possible, without discrimination. From the beginning of civilization, inequality has played a major role in shaping nations' ruling systems. There is enough evidence that inequality has similar importance in the present context as well.
In Sri Lanka, as in many developing countries, the disparities in economic development are clear. Whether it is provincial share of GDP, per-capita income or unemployment rate, the Western province has a better status than the rest of the provinces; in most cases, better than the national-level averages as well.

However, isolated districts and provinces have failed to gather the benefits of economic development, employing a considerable amount of people in the less-productive agriculture sector, in which income levels are very much volatile, paired with harvest changes that make their life insecure as well.

Redirecting these people out of less productive sectors and creating better linkages between rural areas and the economic fortune of cities will have a greater impact on achieving development without unnecessary complications.
The author, Kamal Kandewatte, holds a BA (Hons) in Economics from the University of Colombo and is currently a Temporary Assistant Lecturer at the same university. He can be contacted via
[email protected]l.com

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