Economists argue that decentralization is desirable to enhance growth and development. There is a big demand for decentralization in developing countries and economies in transition. In response to the civil crises aroused in 1983 and afterwards, Sri Lanka introduced a decentralized system of government in 1987 with one objective of achieving balanced regional development. Thus, the relationship between the degree of decentralization and economic development needs to be analyzed. Some empirical studies in respect of developing countries based on quantitative data show that there is no positive relationship between economic growth and the degree of decentralization. This finding is consistent with the views of some other researchers and the theory of clubs.

However, these findings are of little importance for the countries where there is a demand for the decentralized systems and such a situation ought to be analyzed in the light of cost benefit analysis. In Sri Lanka, the degree of decentralization is very low compared to other countries. There is a huge imbalance among regions in Sri Lanka. This may be a cause for rejecting Provincial Councils by minorities as a decentralized system. Policy makers should correct the imbalances in regional development to restore peace and order in the country.

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