Abstract
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.
Highlights
Background of the StudyAccording to the International Monetary Fund and Organization for Economic Co-operation Development, the foreign direct investment (FDI) is defined as an international venture in which an investor residing in the home economy acquires a long-term “influence” in the management of an affiliate firm in the host economy
Various international organizations and foreign advisors suggested that developing countries should focus primarily on foreign direct investment (FDI) as a source of external finance
Based on the overall study findings, we conclude that, there is no significant impact of FDI on the economic growth, which is in lowest level
Summary
According to the International Monetary Fund and Organization for Economic Co-operation Development, the FDI is defined as an international venture in which an investor residing in the home economy acquires a long-term “influence” in the management of an affiliate firm in the host economy. There are two main sources of trade statistics: the first is international trade in goods statistics which provide highly detailed information on the value and quantity of international trade; the second is balance of payments statistics which register all the transactions of an economy with the rest of the world. In 2002, Organization for Economic Co-operation Development (OECD) suggested that FDI has the favorable climate in terms of economic growth, employment opportunities and poverty alleviation in an economy. The achievements of the above mentioned favorable climate generally depend on the various economic, social and political factors. The financial system stability, better integration of financial intermediaries, appropriate fiscal and monetary policy, interdependence between the economic sectors, well established connection between domestic and foreign trade are recognized as the influencing factors on the FDI
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