Foreign Direct Investment and Economic Growth: Evidence from Sri Lanka

  •  Thirunavukkarasu Velnampy    
  •  Sivapalan Achchuthan    
  •  Rajendran Kajananthan    


Various international organizations and foreign advisors suggested that developing countries should focusprimarily on foreign direct investment (FDI) as a source of external finance. In this context, the main purpose ofthe study is to find out the impact of foreign direct investment on economic growth in the Sri LankanPerspective. Data on the foreign direct investment and economic growth from the year 1990 to 2011 werecollected for the study purpose. Further, the results revealed that, there is no significant impact of FDI on theeconomic growth, which is in lowest level. Only 4.3 percent of the variance in the dependent variable has beenfound. In contrast, we found that, in the Sri Lankan context, there is a long run equilibrium relationship betweenFDI and economic growth rate. Statistical findings on the basic regression analysis, Co integration test andGranger causality test show the contradiction in terms of the findings. Meantime, scholars in the econometricsstated that, Co integration test generally is applied among time series data. Due to that, Co integration test givethe insights to the findings in terms of long run view. Finally, we have suggested that, the Sri LankanGovernment and Central Bank of Sri Lanka jointly should take the necessary action to focus on theinfrastructure development through the FDI to get the economic growth in the long term view. Meantime, FDIshould be directed to agricultural actives to get the food sufficient aspects in the local and globalized level.

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