Foreign direct investment (FDI) can play a significant role in achieving rapid economic growth in developing countries such as Sri Lanka. Even after the 30-year-long war that ended in 2009, the economy is still struggling to convince domestic and foreign investors that Sri Lanka is ‘ready for business’. In the light of this situation, identifying the factors that could influence FDI inflows into Sri Lanka is crucial to design policies aimed at attracting more FDI. This article empirically investigates the determinants of FDI inflows into Sri Lanka using annual data for the period 1978–2013 and applying the latest econometric techniques in time series analysis. As expected, market size, trade openness and infrastructure level have a positive impact, while wage and political instability have a negative impact on FDI. From a policy point of view, the results suggest that, to attract FDI inflows, Sri Lanka should develop and introduce policies that would improve the level of market size, trade openness, infrastructure and political stability but reduce the cost of labour.

In the present paper, the effect of foreign direct investment (FDI) inflows on income inequality in Asia-Pacific Economic Cooperation (APEC) economies is investigated by using annual data for the period 1990-2015. The variables used are the Gini coefficient, FDI inflows, gross domestic product (GDP) per capita, trade openness and human capital. Also, panel Autoregressive Distributed Lag (ARDL) and panel heterogeneous non-causality tests are used in this study. The panel ARDL results suggest that, in the long run, FDI inflows decrease income inequality. This supports the argument that encouraging FDI inflows does not harm the distribution of income in APEC economies. The results also confirm that GDP per capita and trade openness help reduce income inequality while human capital widens income inequality. The results from this study suggest that APEC authorities could implement sound policies to attract more FDI, as evidence indicates that those inflows would narrow income inequality in APEC economies.

This article examines the relationship between tourism and foreign direct investment (FDI) and the factors that enhance tourism in Sri Lanka using data over the years 1978–2015, under a vector autoregressive framework. The results reveal that there is a significant long-run equilibrium relationship between tourism, and a number of variables such as FDI, exchange rate, tourism price and civil war of the country. The results also reveal that there exist unidirectional causal relationships from FDI to tourism and tourism price to tourism, in both the long run and the short run. In light of this finding, it is recommended that Sri Lanka should introduce policies that would increase FDI inflows into the tourism industry and maintain a competitive tourism price to attract more tourist arrivals. JEL: C32, F19, F41, O53

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