and an island-wide representative sample of equal size is enumerated in each monthly round to capture seasonal and regional variations of income, expenditure and consumption patterns.

HIES 2002 was conducted during the period of January 2002 to December 2002 covering seven provinces excluding Northern and Eastern Provinces due to ongoing conflicts. HIES 2012/13 was conducted during the period of twelve survey months from July of the first year to June of the second one and is the first survey to cover all 25 districts in the country following conflict. To ensure comparability, we restrict our analysis only to the seven provinces (consisting of 17 districts) covered in the HIES 2002.<sup>3</sup> Due to changes in the questionnaire over the period taken into account, we homogenize the consumption and income aggregates used in the analysis. This exercise guarantees the maximum degree of comparability between the two survey years, at the expenses of comparability with the official DCS estimates. In particular, we exclude from the consumption aggregate durable goods, other expenses not strictly referable to consumption (such as insurance, or income taxes) and other ad hoc and rarely incurred expenses. Moreover, we do not include in the income aggregate cash receipts from loans, sale of assets, and withdrawal from savings, repayment received from loans given, and receipts with regards to death/birth/marriage, compensation and gain from lottery, since these sources of income are not recorded in 2002. Further details are discussed in Annex 1.

# **3. Country context**

Following the 2002 ceasefire, Sri Lanka experienced a period of strong economic growth averaging 6 percent a year. After a moderate deceleration during the international financial crisis (Figure 1A), growth rebounded at an average of 7.5 percent per year between 2010 and 2013. This strong economic growth coincided with a strong decline in poverty.

Between 2002 and 2012/13, the headcount poverty rate fell from 22.7 percent to 6.1 percent (Figure 1B), using comparable regions and comparable consumption aggregates, reflecting strong positive growth in consumption. In particular, growth for the bottom of the distribution has been high and has exceeded average growth for the distribution as a whole (Figure 2).

What accounts for the decline in poverty? A useful tool to answer this question is the Datt and Ravallion ‐ (1992) decomposition, which splits the change in poverty into a distribution neutral growth effect and a redistributive effect. We decompose the change in poverty for comparable regions in Sri Lanka, and find that indeed growth played the most important role in reducing poverty in 2002-2012/13. Applying Shapely values<sup>4</sup> to the decomposition, we find similar results irrespective of the poverty line used. For instance, using the national poverty line, redistribution alone would have increased poverty by 63 percent (Figure 3), but the effect of growth more than compensated for this.

These results are in line with other countries experiencing large declines in poverty over the past decade. Inchauste et all (2014) estimate the Datt-Ravallion decomposition for a set of 21 countries that exhibited a substantial declines in poverty, defined as an average reduction in poverty of 1 percentage point per year

> 3 Annex 1 has a detailed description of the survey and the construction of the income and expenditure variables used in this paper.

> 4 The standard Datt-Ravallion decomposition includes a residual and the results can vary depending on what is taken as the base year of analysis. However, if one performs the Datt-Ravallion decomposition in both directions and takes the average, the residual vanishes and path dependence is eliminated as proposed by Shorrocks (1999) based on the Shapley (1953) value.

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