Abstract:
Inflow of external finance into Sri Lanka in terms of FDI is instrumental to overcome
socio-economic issues detrimental to achieve economic growth. Objective of this study is
to find nexus between Economic Growth and FDI in Sri Lanka by employing time series
data from 1978 to 2020. The econometric techniques used in this study are listed as Kernel
Fit, Confidence, Ellipse, Co integration, and Error Correction Mechanism – ECM. The
dependent variable in the econometric model defined is GDP- GDP which is the proxy
for Economic Growth in Sri Lanka. The independent variables are defined as FDI– FDI
and EFI – EFI. There is a direct relationship or upward trend between GDP and Foreign
Direct Investment. One percent increase in FDI – FDI leads to increase GDP – GDP by
1.39 percent. An increase of one percent in EFI – EFI lowers down GDP – GDP by 7.99
percent in long run. FDI and integration with the world market are the endogenous
determinates which stimulate the economic growth of the county. As per the findings of
this study, a positive relationship between Economic Growth and FDI as propounded by
Endogenous Growth Model exists.
