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Research Journal of the University of Ruhuna, Sri Lanka- Rohana 12, 2020

the period 2008 – 2018. Meanwhile, other macroeconomic factors such as
infrastructure, inflation, trade openness and wage rates have made significant effect

on FDI inflows. Sahoo (2006) measured the impact of determinants of FDI inflows
in the South Asian countries using the panel cointegration method. The study

reported that market size, growth, prospects and positive country conditions, labour
cost and availability of skilled labour, infrastructure, openness, human capital, rate

of return on investment showed a long-run equilibrium relationship, Where labour

force growth, market size, infrastructure and openness have been identified as the
most important actors to determine FDI inflows in South Asian countries.

Muraleetharan et.al (2018) examined determinants of FDI by using data from 1978 –

2015 in Sri Lanka. The results of the study were derived from the OLS regression
method. In this study, inflation, GDP, interest rate, exchange rate, infrastructure and

international trade volume have been included as the explanatory variables. The

results showed that all influencing factors have played a positive and significant role
to increase FDI in the country. In another major study, Albert and Stuart (2008)

analysed the determinants of FDI inflows to Sri Lanka using the VAR model. This
study explored the long – run effects of macroeconomic factors on FDI inflows to

the country. As per the results of the study the most likely factor of FDI inflows to

the country is wage rate.

Jayasekara (2014) has tried to figure out the factors affecting FDI inflows into Sri
Lanka comparing it with the attractiveness of other countries in the region, such as

India, Bangladesh and Pakistan over the period of 1975 – 2012. The study used fully
modified Least Squires regression model to identify determinants of FDI and

attractiveness of selected countries was measured using an index. As revealed by the
results, GDP growth rate, inflation, infrastructure quality, lending interest rate,

labour force, exchange rate and cooperate income tax have been identified as

significant determinants of FDI inflows. All these factors are directly related to the
cost of production of investors. As per the results of the FDI index, India and

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