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

Sri Lanka followed a package of investment incentives, including a reduction in
corporate tax rates and tariffs, removing of foreign exchange controls, and a shift in

price incentives for investment in favour of export industries and to attract foreign
and local enterprises to set up their operations in the country. Thus, incentives for

export-oriented foreign investment under an attractive Free Trade Zone (FTZ)
scheme are outstanding.

It is worthy to note that the patterns of FDI inflows and domestic capital formation

demonstrate a very clear association during the same time period. In order to get a

clear picture these two indicators were placed in the in the same chart. Interestingly,
the Figure 03 reveals a clear systematic pattern (pattern of what?)

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1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017
FDI(%GDP) GFCa

Figure 03: Capital formation (Fixed) and FDI as a percentage of GDP in Sri
Lanka (1985-2018)
Source: World Development Indicators-2020

The relationship between trade openness and FDI (% of GDP) in Sri Lanka

(1985-2018 )

On general, the increase in trade openness was supposed to play a crucial role in
inspiring FDI inflows into the country. The neo-liberal package of trade

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