Growth Accounting for Sri Lanka’s Agriculture with special reference to Fertilizer and Non-Agriculture Prices: Does Policy Reforms Affect Agriculture Development?

The agricultural sector of Sri Lanka, which was the back bone of the economy, suffered due to various reasons including the mostly argued policy reforms called Structural Adjustment Programmes (SAPs). Having considered the problems associated with the earlier models, we have used the two sector general equilibrium model with growth accounting approach using GRM which is the effect exogenous variables on endogenous variables in this paper. Since SAPs had many policy variables to analyze, we have considered only the most important variables as explained in this paper. Our analysis revealed the contradictory results in comparison to some of the earlier studies. The overall results point out that policy changes are favorable to the overall agriculture development though their impact on the domestic food sector is negative. Since we have considered the fertilizer effect as most serious determinant under policy change, our study clearly indicates that the fertilizer prices tremendously effect the agriculture production and it was also negatively affecting the domestic food production. Secondly this paper also analyzed the impact of non-agriculture products and prices and found out that these positively helped the development of overall agriculture. Thirdly, food imports are open under the new policy reforms and make considerably large impact on the domestic food production.