Foreign Direct Investment and Economic Growth Evidence from Sri Lanka

This paper discusses the link between Foreign Direct Investment (FDI) and the economic growth of Sri Lanka together with, national investment, labour, trade openness, and university graduation in Sri Lanka from 1980 to 2016. The study confirms that there is a significant long-run association between real variables such as, Gross Domestic Product (GDP), national investment, employment, and trade with FDI and the short run co-efficient of FDI has also reported a level of significance. The model also indicates that, FDI can positively affect national investment, and employment but negatively affect trade. The reported model forecasts that the historical trend of low level of growth for FDI is expected to stay unchanged over the next few years. FDI may act as an important element to accelerate the economic development of Sri Lanka. Policy formulation should aim at improvements to the infrastructure, wider scope for gaining FDI spill-overs to domestic production, domestic labour market and encourage import substitute for FDI.