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

Economic reforms under the SAP from 1978 to 1982 and ESAP from 1989 to1993
recognized the importance of foreign capital inflows as a strategy of economic

growth through export led industrialization. Being short of capital, Sri Lanka has
persistently liberalised its investment regimes to attract more foreign direct

investment (FDI). In the case of Sri Lanka, SAPs have induced supply side
incentives and Sri Lanka has attracted increasing numbers of foreign investors.

Economic management was strengthened while rapidly opening its economy to the

world by reducing trade barriers, such as foreign exchange restrictions to establish a
stable macroeconomic environment to attract FDI extensively. The adjustment

period witnessed a massive increase in FDI; the foreign investors steadily and
remarkably responded to the policy reforms (Athukorala, 1997).

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1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017
South Asia World Sri Lanka Upper Middle Income Countries

Figure 01: FDI inflows (% of GDP) in Sri Lanka with South Asia, Upper
Middle-Income Countries and World comparisons (1985-2018)

Source: World Development Indicators-2020

In terms of an international comparison for the 1980s and 1990s Sri Lanka’s

performance in attracting FDI seems to be impressive (see Figure 01). It is clear that
FDI inflows, measured as the percentage of GDP, fluctuated over the past four

decades. In the 1990s, and the following two decades, FDI amounted to well over 1
percent of GDP, which is well above both the world and South Asian averages.

However, in contrast to the weak flows in the 1980s, the period from 1995 to 2007

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