Exchange rate, exchange rate volatility and foreign direct investment in Sri Lanka
This paper investigates the effect of exchange rate, exchange rate volatility, and expected exchange rate on foreign direct investment and the factors, which are influential on exchange rate volatility in Sri Lanka during the period 1978 2012. Two equations were fitted and estimated using Zellner's seemingly unrelated regression model. Results of the equation 1 revealed that standard deviation of exchange rate, total electricity provision and trend were significant on foreign direct investment. According to the equation two, foreign direct investment, inflation and trade shocks were significant on exchange rate volatility during 1978 2012 period. The results indicated that stability of exchange rate and improved infrastructure facilities were important to attract foreign direct investment. Sri Lanka Journal of Advanced Social Studies, 2013; Vol 3(2) Page 75 96