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

Infrastructure

The more development of infrastructure in the host country, the more attractive it is
for foreign investors to invest as they are expecting to locate in a more productive

and cost effective environment. The level of Infrastructure development including
transport, telecommunications, electricity and water supply are considered as a

sound indicator of the host country’s socio-economic position. As revealed by many
studies it is expected that there should be a positive relationship between

infrastructure and FDI inflows (Asiedu, 2006; Straub and Terada-Hagiwara, 2011;

Jayasekara, 2014; Sahoo,2006.

Labor cost

Labor cost is also generally considered as an important factor to determine FDl
inflows. A higher wage rate index could reflect higher labor cost of production

resulting in reducing FDI. Therefore, a negative relationship between FDI inflows

and wage rate index is hypothesized.

Data sources

The study mainly based on the annual time series data covering the period of 1985 –
2018. The data has been gathered from different sources including annual reports

and Economic and Social Statistics reports published by the Central Banka of Sri

Lanka along with the World Development Indicators published on line by World
Bank.

Empirical results

Before running the ARDL bounds test, the variables need to be tested for

stationarity. In order to determine the integration of variables, the researcher applied

the unit root test. For this purpose, the commonly accepted ADF (Augmented
Dickey-Fuller) unit root test was adopted. It should be noted that the ARDL bounds

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