p-ISSN 2477-0531 e-ISSN 2622-8386 Asian Journal For Poverty Studies 5(1): 1 - 14 (2019) 1 IMPACT OF URBAN SECTOR ON POVERTY AND INCOME INEQUALITY IN SRI LANKA N.P. Ravindra Deyshappriya 1* 1 Faculty of Management, Uva Wellassa University of Sri Lanka, Badulla. 90000. * Corresponding Author: ravindra@uwu.ac.lk ABSTRACT 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 well. Keywords: income inequality, poverty, ordered probit model, Gini coefficient, decile INTRODUCTION Process of urbanization in Sri Lanka has been relatively slow compared to other regional counterparts such as India and Pakistan. The share of population living in towns and cities in Sri Lanka was observed to have decreased slightly between 2000 and 2010. This was driven by the low number of people wanting to relocate from rural to urban areas, largely driven by the country’s successful progress in achieving spatial equity in the provision of basic public services and improving living standards in both rural and urban areas (World Bank, 2015). Therefore, the share of population relocating from rural to urban areas is relatively low in Sri Lanka when compared to other countries in the region. This is estimated to be the reason for Sri Lanka’s relatively stable share of urban population. However, Sri Lanka had the fastest expansion of urban area relative to urban population in comparison to other countries in the region, as measured using nighttime lights data (World Bank, 2015). Its total urban area grew at a rate close to that of the region figures. However, its urban population growth rate was much lower than that of the region overall, despite a continuous increase was observed in its total urban population. However, urban population as a percentage of total population has decreased until 2013, and has increased from 2013 onwards. Moreover, the percentage of urban population growth remained constant until 2012, and continued to increase drastically after 2012. It is important to note, when referring to the urbanization of Sri Lanka, that the urban sector is not confined into any one specific city such as Colombo or Gampaha. The urban sector of Sri Lanka comprises of all urban areas located in each of 9 provinces of Sri Lanka.