Determinants of Foreign Direct Investment in Sri Lanka

Abstract

This study focuses on empirical analysis to find out the role of international trade volume, gross domestic product, infrastructure, interest rate, exchange rate and rate of inflation in foreign direct investment in SriLanka. The analysis based on time series data for the period 1978 to 2015. This study uses ADF tests to find out stationary of the variables and Ordinary Least Square techniques have been used for the estimation. However positive impact on real gross domestic product, Interest rate, Exchange Rate and Infrastructure Quality but not significant impact of inflation rate and International Trade Volume. Furthermore, foreign direct investment and trade are considered vital elements that improve the influence of foreign Direct Investment. If suitable policies are formulated then Exchange rate can be enhanced by FDI at a large scale. Single digit inflation is essential condition for a growing economy like SriLanka.