IMPACT OF URBAN SECTOR ON POVERTY AND INCOME INEQUALITY IN SRI LANKA

Sri Lanka has been one of the countries in the region with faster expansion of urban areas. However, less attention has been paid on the rapid expansion of Sri Lanka’s urban areas and its impacts on poverty and income inequality in Sri Lanka. Hence, the objective of the current study is to examine the impacts of urban sector on poverty and income inequality in Sri Lanka. The study applied probit and ordered probit models and calculations of growth elasticity of poverty along with appropriate descriptive statistics. The analysis is mainly based on the data from Household Income & Expenditure Survey (2012/13) conducted by the Department of Census and Statistics of Sri Lanka. The findings suggest that the being an urban sector household significantly reduces poverty. More specifically, the probabilities of being extreme poor, poor and vulnerable non-poor for a household in the urban sector are lower by 0.2%, 3.4% and 8.1% respectively, compared to the estate sector. Similarly, the probability of being non-poor for a household in urban areas is higher by 11.63%, compared to the estate sector. Furthermore, the urban sector has the highest Growth Elasticity of Poverty (-0.31) which reflects that the rate at which growth translates into poverty reduction is highest in urban sector compared to other sectors. Apart from that, expenditure-based and income-based Gini coefficients for the urban sector are 0.4 and 0.51 respectively, and both are higher than that of the national and provincial averages of the Gini index. Moreover, the poorest decile of the urban sector owns only 0.5% of the total urban sector income while the richest decile accounts for 55.8% of the total household income of the urban sector. The study has empirically confirmed that, despite urban sector has the lowest probability of being poor, urban sector and urbanization significantly increase inequality. Therefore, the study recommends having a well-planned urban sector that promotes more equal distribution of resources as wel