Abstract:
The objective of this study is to identify influential factors which affect the attractiveness of inward
foreign direct investment (FDI) of infrastructure sector in Sri Lanka. Foreign direct investment is one of the main
components of the development of a country. Through FDI, new technologies, new capital goods and human
capital development programs can be obtained. Even though attracting foreign investors to the developing country
is relatively difficult. Though Sri Lanka is top compared to India, Pakistan and Bangladesh, which have relatively
poor index value still, Sri Lanka is behind in attracting FDIs in South Asian region, according to “Ease of doing
business index”. With that background, this empirical study tried to identify what are the determinants which
effect on inward foreign direct investment in Sri Lanka. For convenience, the research area was narrowed down
and limited to infrastructure related industries. Primary data was collected through questionnaires using Likert
scale including firms operate in Telecommunication, Port Services and Construction sectors of infrastructure
industry. The importance of each selected factors (market size, level of transportation facility, level of
telecommunication facility, economic growth, civil war existed in the country, cultural distance, geographical
position, political stability, government assistance and changes made in imposed barriers on imports) were
analyzed. Test and effect from each variable on the attractiveness of FDI were tested. The results obtained from
the SPSS software, seven factors out of selected ten factors have shown an effect on the attractiveness of FDI in
Sri Lanka. They are market size, level of transportation facility, level of telecommunication facility, economic
growth, and civil war existed in the country, cultural distance and geographical position. The rest of the factors
(political stability, government assistance and changes made in imposed barriers on imports) do not show effect
on the FDI attractiveness. As the recommendations, government should involve in regional development such as
transportation and telecommunication facility. Also, it is necessary to implement new trade agreements.
