Colombo, August 9, 2010: Enabling people to seek economic opportunities, improving the quality of basic services across all regions, and targeting interventions to stimulate economic growth in selected lagging areas can lead to rapid and geographically inclusive growth in Sri Lanka, says a new World Bank report “Sri Lanka: Reshaping Economic Geography: Connecting People to Prosperity.”
The report launched today uses the framework of World Development Report 2009, “Reshaping Economic Geography.” Applying this framework to the case of Sri Lanka, it identifies challenges and presents policy options for economic integration using a calibrated combination of institutional changes, infrastructure investments and other interventions.
“Sri Lanka’s development journey to middle income status can still be inclusive if people who start their lives in lagging regions of the country can be connected to leading areas where there are economic opportunities,” says Naoko Ishii, World Bank Country Director for Sri Lanka and the Maldives. “However, targeted interventions aimed at simply relocating economic activities to lagging areas can in reality slow down economic progress because workers and firms earn higher returns when located close to the international gateway and to similar businesses.”
The report shows that Sri Lanka’s economic geography is being reshaped as land uses change to accommodate higher value production, as people seek economic opportunities through both internal and external migration, and as the country moves from specializing in primary products to manufacturing.
While economic production has become concentrated, Sri Lanka’s public policies have been remarkably successful in leveling social welfare and preparing the ground for inclusive development. Poverty has come down in all provinces and service delivery in education, basic healthcare, and basic infrastructure including water and sanitation is dispersed throughout the country.
“Sri Lanka needs to build on what has already being achieved and design and implement more ambitious policies to improve living standards across provinces, amplifying but not dampening the processes of geographic transformation, ”says Somik V. Lall, Co-author and Senior Economist, World Bank. “The need is to prioritize how policies can be attuned to the scale of challenge of integration facing different areas.”
Chapter one of the report looks at unbalanced growth and inclusive development and examines the geography of production and living standards. Presenting statistical data the report identifies the need to reduce regional disparities in health and education outcomes to improve human development outcomes. Despite the country’s laudable achievements in delivering health and education services, gaps in geographical pockets and vulnerable groups remain. While commending overall literacy and gender equality, the report shows that there are large differences in learning outcomes across regions.
Chapter two examines transformation of land use, mobility of people, and flow of products that are the drivers of geographic transformation. The focus is on identifying key constraints that impinge on the fluidity in the markets for land, labor and products that restrict land use change and workers access to economic opportunities and products traded across locations. While identifying infrastructure as a key driver of transport costs the report examines the high cost of transporting goods in Sri Lanka. Insights are provided to understand how deregulation of the trucking industry reduced costs in France. The report also looks at how internal migration benefits lagging regions through remittances flow and a “wage-pull” effect, as excess lower skilled labor in one area migrates to another.
Finally, Chapter three analyses and uses data and poverty maps and stresses the importance of ensuring that basic services are available everywhere; the need for improving infrastructure to connect lagging and leading regions and the essential requirement of targeting interventions in selected lagging areas. The report identifies public policy priorities for improving living standards across different areas and categorizes them as:
Spatially blind policies of institutions that are not explicitly designed with spatial considerations like the tax system, intergovernmental fiscal relations, governance of land and housing markets as well as education, health care, basic water and sanitation and other public service initiatives;
Spatially connective policies refer to infrastructure investments such as basic business service, public transportation and utilities such as interregional highways, railroads to promote trade in goods and improving information communication technologies to increase the flow of knowledge; and
Spatially targeted policies to stimulate economic growth in lagging areas. These measures include investment subsidies, tax rebates, local regulations, local infrastructure development and targeted investment climate reforms, such as special regulations for export processing zones.
In conclusion the report states that by making efforts along these dimensions, policymakers can help in unifying Sri Lanka. Although geography of production will get further unbalanced, the geography of living standards will become more uniform. The hope is that this transformation will lead to accelerated economic growth and enhanced social harmony.