The Structure of the Sri Lankan Economy

Abstract

Sri Lanka is a small island economy without much of natural resources. In spite of a troubled domestic environment in recent times, the country has recorded an impressive peiformance in the areas of Average Life Expectancy, Adult Literacy rates, Infant Mortality Rates and similar indices of develapment. However, economic growth, sustained employment generation, reasonable price stability, balance in the external sector, and reduction in income inequality have not been adequate though to proper economy into the league of Developed Nations. The objective of this paper is to study the inter-sectoral linkages of this economy using Multiplier Analysis to understand his structure by measuring the degree of interconnectedness of its different sectors, since the effectiveness of policy measures is expected to depend on the degree of interconnectedness of an economy. For this purpose, the Extended Input-Output Methodology combining the Leontief (1941) and Ghosh (1958) Models has been used. The results show that the various sectors of the economy are weakly integrated, which is perhaps the reason why the effects of growth and development oriented policies have not percolated down throughout the economy. The development of strong inter-sectoral linkages is therefore a necessary prerequisite for the country's overall economic development.