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

Author

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  • NPG Samantha

    (School of Economics, Huazhong University of Science and Technology, Wuhan, Hubei, P.R. China)

  • Liu Haiyun

    (School of Economics, Huazhong University of Science and Technology, Wuhan, Hubei, P.R. China)

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.

Suggested Citation

  • NPG Samantha & Liu Haiyun, 2017. "The Impact of FDI on the Economic Growth of Sri Lanka: An ARDL Approach to Co-integration," International Journal of Innovation and Economic Development, Inovatus Services Ltd., vol. 3(5), pages 70-82, December.
    • Handle: RePEc:mgs:ijoied:v:3:y:2017:i:5:p:70-82
    DOI: 10.18775/ijied.1849-7551-7020.2015.35.2006
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    Citations

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    Cited by:

    1. Mohammad I. Elian & Nabeel Sawalha & Ahmed Bani-Mustafa, 2020. "Revisiting the FDI–Growth Nexus: ARDL Bound Test for BRICS Standalone Economies," Modern Applied Science, Canadian Center of Science and Education, vol. 14(6), pages 1-1, June.
    2. Shuibin Gu & Gigamon Joseph Prah, 2020. "The Effect of International Financial Reporting Standards on the Association between Foreign Direct Investment and Economic Growth: Evidence from Selected Countries in Africa," Journal of Accounting, Business and Finance Research, Scientific Publishing Institute, vol. 8(1), pages 21-29.
    3. Biswajit Maitra, 2021. "Relative role of external debt, FDI, and domestic investment in economic growth: evidence from Sri Lanka," International Journal of Economic Policy Studies, Springer, vol. 15(2), pages 329-347, September.

    More about this item

    Keywords

    FDI; Economic growth; ARDL approach; Co-integration; Stability and diagnostic analysis; Long-run relationship.;
    All these keywords.

    JEL classification:

    • M00 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - General - - - General

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