Foreign Direct Investment and Economic Growth: Evidence from Sri Lanka
Various international organizations and foreign advisors suggested that developing countries should focus primarily on foreign direct investment (FDI) as a source of external finance. In this context, the main purpose of the study is to find out the impact of foreign direct investment on economic growth in the Sri Lankan Perspective. Data on the foreign direct investment and economic growth from the year 1990 to 2011 were collected for the study purpose. Further, the results revealed that, there is no significant impact of FDI on the economic growth, which is in lowest level. Only 4.3 percent of the variance in the dependent variable has been found. In contrast, we found that, in the Sri Lankan context, there is a long run equilibrium relationship between FDI and economic growth rate. Statistical findings on the basic regression analysis, Co integration test and Granger causality test show the contradiction in terms of the findings. Meantime, scholars in the econometrics stated that, Co integration test generally is applied among time series data. Due to that, Co integration test give the insights to the findings in terms of long run view. Finally, we have suggested that, the Sri Lankan Government and Central Bank of Sri Lanka jointly should take the necessary action to focus on the infrastructure development through the FDI to get the economic growth in the long term view. Meantime, FDI should be directed to agricultural actives to get the food sufficient aspects in the local and globalized level.