Growth and Equity in Developing Countries: A Reinterpretation of the Sri Lankan Experience
World Bank Economic Review
In the important debate between the proponents of direct (basic needs) and indirect (economic growth) measures of promoting welfare, Sri Lanka has frequently been cited as one country which has successfully pursued the direct approach-it has raised living standards without much cost in terms of reduced growth. This conclusion, however, is based on analyses which do not accountfor the initial conditions of the countries being compared. After methodologically incorporating these concerns, neither
... the improvement in living standards nor the 2.0 percent per capita growth rate during the period of direct policy measures was exceptional. In contrast, during the period of more indirect growth-promoting policies , (i) economic growth more than doubled to an average rate of 4.3 percent per capita per annum; (ii) expenditure inequality did not significantly change; (iii) consumption expenditures of the population, and the poor, generally increased; and (iv) several living standard indicators continued to improve. Growth and equity are two important goals of developing countries. Depending on the fashions of the times, development economists (and policymakers) have variously emphasized the complementarities or trade-offs between these twin objectives of economic development. While there is general agreement that increased equity means an improvement in the living standards of the poor, there is disagreement about the appropriate emphasis to be placed on this goal. This disagreement can be brought into focus by contrasting two opposing viewpoints. One point of view contends that an attack on poverty requires heavy reliance on direct measures to meet basic needs.