The Impact of FDI on the Economic Growth of Sri Lanka: An ARDL Approach to Co-integration

Abstract

The impact of foreign direct investment(FDI) on host country economic growth is a debatable issue in the recent economic literature. The purpose of this study is to examine this issue for a country which practiced comparatively more liberal economic policies within the South Asian region over four decades. The ARDL approach to cointegration is applied to identify long-run relationship and short-run dynamics between selected variables for the period of 1978 to 2015 for Sri Lanka. The empirical result confirms the long run relationship between the variables. FDI is positively correlated with economic growth in the short run and long run, but it is not a significant factor for economic growth in Sri Lanka. Sri Lanka will have to undertake policy reforms related to FDI in order to attract more greenfield investments to boost economic growth creating new job opportunities and expanding exports in the manufacturing sector. These findings would be an example for other small open economies with similar economic characteristics.

Determinants of Chinese Direct Investment in Central-East Europe under the Belt and Road Initiative Framework: A Panel Data Analysis

“…The reputation of global firms like Škoda and TOS also represents that Czech has a long history and abundant experience in industrialization and development in machinery industry. In accordance with statistic reports, the export from China to Czech is principally composed by machinery products, which possess more than 20% portion in Czech market, and base metal, and commodities (Liu & Zhou, 2018). Apparently, the BRI strategy prompts and facilitates the bilateral corporation between Chinese firms and Czech firms.…”

“…Despite many articles suggest that GDP growth is supposed to be a relevant factor for attracting FDI, some studies express that GDP growth might not necessarily have apparent relationship with FDI. For example, Liu & Samantha (2017) indicate in their study, throughout data analysis for South Asian region, it is found that FDI is weakly and positively influenced by economic growth in Sri Lanka in the long term, since the economic growth in Sri Lanka is more correlated to its domestic investment rather than FDI. The weak correlation, inside CEE region, here, between economic growth and Chinese outward FDI, might be explained by the impact from forceful Chinese government-oriented policy on business strategy planning, which hinders many state-owned enterprises to be purely opportunistic in operating their capital.…”

“…According to statistical data published, from a broad perspective, Chinese direct investment in CEE region has increased from 436.66 million to 2.87 billion in period 2009~2018, that signifies it has 23.26% annual growth rate in average. Concerning export, machinery products, textile products, commodities and miscellaneous products are the three biggest categories, which occupy more than 50% of China's export to CEE countries (Liu & Zhou, 2018). At the same time there exists heterogeneity concerning the density of Chinese direct investment (Chinese direct investment stock to GDP ratio) among CEE countries.…”

“…This heterogeneity is considered as a question requiring further research for explanations. Also, Liu and Zhou (2018) indicated that China's trade competitiveness index differs from one country to another. In the CEE region, China's export has relative more advantages in Czech and Poland while it has low competitiveness in Croatia, Lithuania, and Latvia.…”

Lingering effects of foreign resource dependency in Pakistan: Assessing gains from domestic resources

“…The country's economic, political, and social situation is also essential to increase foreign direct investment (Pusterla & Resmini, 2007). The empirical investigation pointed out that FDI is a favorable variable that positively impacts the economy in the short and long run (Iram & Nishat, 2009;Samantha & Haiyun, 2017). Theoretically, it was expected that foreign firms might not invest because of high investment costs and unfamiliar institutional and political regimes.…”