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

The results of the estimated variables of the long-run model using ARDL approach
are reported in Table 04. The impact of corporate tax rate on FDI inflows is

negative and statistically highly significant. As revealed by the results 1 percent
point increase in corporate (corporate what?) leads to a 2.5 percent points increase in

DI inflows when holding other variables constant. However, in contrast to the
findings of Koojaroenprasit (2013) this variable was not significant. The model

indicates that the exchange rate is not statistically significant. Therefore, we can

conclude that the change in exchange rate do not significantly influence FDI inflows
into Sri Lanka.

Interestingly, financial development (FD) is statistically significant at 5%, indicating

a 1 percent increase in bank lending to the private sector when other things equal.
Here, FDI inflows will increase by 0.9 percent. Claessens et al. (2001) and Agarwal

Mohtadi (2004) stated a similar argument. As revealed by the results, the GDP

growth, which is used as proxy for market size, plays a crucial role in explaining the
level of FDI inflows to Sri Lanka. It shows that the growth in the Sri Lankan market

will encourage foreign investors to operate investments in the country. It can be seen
that, holding other variables constant, each percentage –point increase in GDP

growth will cause the increase of 2.3 percentage points in FDI inflows. These results

also accord with some previous work in this field (Tampakoudis et al.(2017);
Delitheou (2011). It is worthy to note that studies which used GDP per capita as

proxy for market size also obtained similar results (Koojaroenprasit (2013); Albert
and Stuart (2008); Sahoo (2006); Boateng (2015); Ravinthirakumaran et al. (2015).

Trade openness also is a very strong determinant of the FDI inflows into Sri Lanka.

The coefficient of openness is highly significant and positively associated with FDI.
This finding suggests that an expansion of the openness of the FDI inflows into the

host country will increase. This result is consistent with that of other studies

(Tampakoudis et al. (2017); Rasheed (2019); Basar and Tosunoglu (2006);. Albert
and Stuart (2008) which showed that countries recorded a considerable amount of

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