Understanding of Lethargic Development on Small Holder Farming Sector in Sri Lanka: An Analysis from New Institutional Economics

The root causes of the economic growth weakness in under development of Sri Lanka have long been traced from different angles and views. It is still continuing as in many other countries with more or less similar experiences. The major objective of this paper is to unearth the institutional causes of economic under development on Small Holder Farming Sector (SHFS) in Sri Lanka, from New Institutional Economics (NIE) point of view, with special references to the post independent period. One of the major causes for growth weakness with lethargic situation on agricultural sector in Sri Lanka is weak of ―institutional arrangement‖ and ―institutional environment‖ supports. Therefore the major research question arising from this context is, ―Why Sri Lankan small farmer losing control over their political and economic destiny? Is it defects of policy innovation or defective implementation of the state? and why Sri Lanka State has fail to develop new forms of economic, political and social organization of production system for small farmers, going beyond the nation-state, a new requirements of the globalize capitalist system of agricultural production. This study provides the potential contributions of the NIE to agricultural policy issues in Sri Lanka. The study starts by providing an overview of the NIE and its several branches of thought. New Economic History, Public Choice and Political Economy, New Social Economics, Theory of collective action, Law and Economics. Transaction Cost Economics, Economics of Information and Property Rights are the use of few main analytical thoughts. It describes the future challenges facing Sri Lankan agriculture and show the potential application of new institutional and transaction costs economics to agricultural policy analysis in new world environment. Essay also provides the specific examples of interest in the area of agricultural marketing policy issues in Sri Lanka that can be analyzed using NIE. As a dynamic and relatively new school of thought, NIE offers exciting opportunity to answer some of these problems that neo-classical economics has found difficult to address.