Impact of Foreign Direct Investment on Major Macro-Economic Variables in Sri Lanka

Abstract

With globalization and the disintegration of the socialist block of countries, FDI as a source of foreign investment has been accepted as a crucial factor in accelerating economic growth, especially in developing countries. Economic liberalization could be considered a turning point of FDI policies in the recent history of these countries even though it has consequently been checked by political uncertainties, especially civil wars. There have been increases and decreases of FDI in post-independence Sri Lanka due to political perceptions of various regimes. Sri Lanka has not succeeded in attracting sufficient FDI yet, even though the war has been over for sometimes. Sri Lanka is a small, open economy, and FDI makes a considerable impact on its macroeconomic variables.