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Until the 1970s, Sri Lanka was often seen as a model for a third world democratic welfare state. However, its image as a model of development and democracy has been rapidly and severely tarnished over the 1980s and the 1990s. Recently, a number of studies have attempted to explain the reasons for Sri Lanka's fall from grace. According to these studies, Sri Lanka's recent history of underachievement and economic crisis can be attributed to the country's 25-year-old war, policy mistakes, an inefficient large public sector, and poor governance. In this study, I propose to argue that the erosion of 'productive' social capital has also played an important role in the sorry tale of development in Sri Lanka. To this end I investigate how its accumulated stocks of productive social capital have been eroded. IntroductionUntil the 1970s, Sri Lanka was often regarded as a model third world democratic welfare state. After the Second World War, successive governments in Sri Lanka (then called Ceylon) gave priority to the universal provision of education, health care and securing a minimum level of consumption for all citizens. There was remarkable progress in education, health care and nutrition. All this made Sri Lanka in the 1960s a shining exception among developing countries. Indeed its human development indicators at that time were not far behind those even of developed Western countries. Last but not least, Sri Lanka had a deep-rooted parliamentary democracy. Not surprisingly, optimism was abundant:

List of Illustrations ' xiv Acknowledgements xvi List of contributors xvii Acronyms and abbreviations xix 1 Trade liberalisation and poverty in South Asia: reforms, stylised facts and preview 1 PREMA-CHANDRA ATHUKORALA, JAYATILLEKE S. BANDARA AND SAMAN KELEGAMA Trade policy reforms: an overview 3 Economic performance and poverty: some stylised facts 7 Preview 13 2 Trade and poverty: theory, evidence and policy issues 17 JAYATILLEKE S. BANDARA