Inequality Trends and Determinants in Sri Lanka 1980-2002: A Shapley Approach to Decomposition

Sri Lanka liberalised its economy in 1977, paving the way for more rapid economic growth and higher rates of job creation. But tensions over distributional issues still plague the body politic. This paper investigates the evolution of Sri Lanka's income distribution in the period 1980-2002 and uses the Shapley value decomposition methodology to determine underlying causes. The study finds that while average incomes rose across strata, the rich experienced more rapid income growth leading to greater inequality. Inequality change was driven by differential access to infrastructure, education, and occupation status. Demographic factors including ethnicity, and spatial factors, contributed very little. The study recommends policies that ensure more equitable access to income earning assets such as education and infrastructure services and make sure that increases in inequality do not take place along sectoral, regional and ethnic fault lines.