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 account for 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 (1960-78) was exceptional. In contrast, during the period of more indirect growth-promoting policies (1977-84), (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.
Bibliographical noteFunding Information:
Surjit S. Bhalla and Paul Glewwe are on the staff of the World Bank. This article stems from a joint World Bank-Central Bank of Ceylon research project entitled Evolution of Living Standards in Sri Lanka, the major funding for which was provided by the Swedish International Development Agency. The authors are thankful for this support and would also like to thank the Central Bank and the Department of Census and Statistics, Sri Lanka, for their generous cooperation.