8 The Effect of Decentralization of Power on Economic Development: The Sri Lankan Experience D. I. J. Samaranayake and J. G. Sri Ranjith Department of Economics and Statistics, University of Peradeniya, Sri Lanka Keywords: Provincial council system; Devolution of power; Regional GDP; Government expenditure. Introduction Economic development at the regional level was regarded as an expected major intention with the commencement of the Provincial Council (PC) system in 1987. However, even after almost three decades of power devolution the expected outcome of the PC system is seemingly yet to be realized. Regardless of the fact that the current practice of regional development policy under the PC system is less effective, successive regimes, including the current, have made no clear decision to abolish it. According to Uduporuwa (2007), development strategies implemented by Sri Lanka within the past fifty years have not contributed to reduce the socio-economic disparities in Sri Lanka. Gunaruwan and Samarasekara (2013) found that the PCs spend largely on emoluments and spend for their own existence rather than for economic development at regional level. These arguments therefore raise the question on the rationality of continuing with the existing PC system in Sri Lanka. The theoretical aspects of power devolution show the severe limitations of centrally controlled national planning. Rondinelli and Cheema (1983) say that decentralization allows greater representation for various political, religious, ethnic and tribal groups in decision making that could lead to greater equity in the allocation of resources