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Research Journal of the University of Ruhuna, Sri Lanka- Rohana 12, 2020
surpluses from foreign capital toward their national economies. Likewise, some
Asian countries have been successful in attracting more export oriented FDI inflows.
However, Sri Lanka received very limited FDI flows compared to other countries in
the region over the past three decades.
Despite a considerable amount of literature which has been published on
determinants of FDI in many emerging and developing countries, there has been
little discussion about this subject in Sri Lanka. In this context, it is worthy to
explore what factors that significantly affect the FDI inflows in to Sri Lanka. The
current study explores the determinants of FDI inflows to Sri Lanka by using
ARDL-Bounds testing approach to cointegration.
Following the introduction, the paper presents a brief literature. Section three gives
an overview of FDI inflows into Si Lanka. Fourth section discusses the
methodology, while section five deal with the results of the study. The final section
concludes the paper.
A brief literature review
This section attempts to shed some light on empirical literature related to
determinants of FDI inflows. It deals with studies from different countries without
considering their level of development. Empirical literature mainly explores the
variables that have influenced MNCs to invest their capital in host countries. A large
and growing body of literature has investigated the relationship between FDI and
Macroeconomic factors at a global and domestic level. As revealed by many studies,
FDI has played a vital role in developing countries which lack technology as well as
capital to invest in projects (Borenszten et al.1998; Manuel R. et al. 2000).
Hasli et.al (2015) investigated factors that determined FDI inflow in Asia for the
period of 1993 -2013, based on the fixed effect model. Panel data was employed
applying unit root test and regression analysis. In this study macroeconomic factors
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