Abstract:
There are several indicators to measure the economic development of a nation such as Gross
Domestic product (GDP), Human Development Index (HDI) and Human Poverty Index (HPI)
etc. In 2008 the Central Bank of Sri Lanka introduced an index to measure the provincial
prosperity of Sri Lanka. The suitability ofthis indicator in measuring the provincial development
is questioned by many critiques, due to various drawbacks. Further, this index cannot be used for
district levels This study aims to suggest the Human Development Index (HDI) and Human
Poverty Index (HPI) for the districts of Sri Lanka using the national level data and further this
study aims to identify the weaknesses of the present Sri Lanka’s prosperity index (SLPI) and
formulate a new refined prosperity index for districts in Sri Lanka. The HDI and HPI are
estimated using the methodology proposed by the Human Development Report ofthe UNDP and
the districts were ranked according to the estimated HDI and HPI values. The suitability of these
indicators is verified by the variation of HDI and HPI between the districts in specific time
periods. The new refined prosperity index was formulated by correcting the conceptual
weaknesses in SLPI. New variables were included in the new refined index. These variables
were statistically analyzed using principal component analysis and factor analysis. The research
findings reveal that the HDI has several weaknesses in measuring the regional development. The
weaknesses are the inappropriate estimation methodology ofHDI and the slowly changing nature
of the variables included in the HDI. Another weakness is the low weight given to the GDP
index of the HDI, which covers more aspects of development. The HPI shows significant
variations throughout the time periods as well as between districts. This is due to the appropriate
estimation methodology ofHPI and the suitability ofvariables included in the HPI to capture the
multi-dimensional perspective of the poverty. Therefore, instead of HDI, the HPI could be used
as an indicator ofregional poverty levels. The new refined index is a conceptually stronger index
than the SLPI as it covers all aspects of prosperity and provides the sector performance of
different districts.
