Effect of capital flow on economic growth in Sri Lanka

Abstract

Assessing the connection between capital flow along with economic growth over the emerging markets including Sri Lanka is limited and its repeated study is also essential since these markets changing usually due to several macro-economic factors. The liberalized economic policy of Sri Lanka since 1977 drawn the worldwide capital inflow at a sort of foreign direct investment to Sri Lanka and affected the economic performance of the county. Hence, the question of “To what extent Sri Lankan economic growth responds to this global capital flow?” is a considerable research issue. Thus, the purpose of the study is to inquire into the consequence of foreign direct investment in the economic growth of Sri Lanka from 1978 into 2018. The parameters of the regression model estimated based on the Ordinary Leased Square method. The right model was chosen together with the use of linear, linear-log, log-linear, and log-log data conversion. The model that has the highest R? value had been chosen. Consequently, the linear model that includes an adjusted R’ value of 87 percent had been selected. The study finds that foreign direct investment is positively and significantly affect the economic growth quantified with respect to gross domestic product of Sri Lanka throughout the length of analysis.