Open AccessDoes Inward Foreign Direct Investment Promote Export? Empirical Evidence from Sri Lanka
Author(s) -
Npg Samantha,
Haiyun Liu
Publication year - 2018
Publication title -
business and economic research
Language(s) - English
Resource type - Journals
ISSN - 2162-4860
DOI - 10.5296/ber.v8i3.13061
Subject(s) - foreign direct investment , granger causality , short run , economics , distributed lag , sri lanka , international economics , exchange rate , monetary economics , order (exchange) , investment (military) , export performance , econometrics , macroeconomics , tanzania , finance , socioeconomics , politics , political science , law
Export-led growth hypothesis assumed that long-term economic growth can be achieved through higher exports. Foreign Direct Investment (FDI) is one of the determinants of export performance that can have a substitute effect or complementary relationship to export. The aim of this study is to investigate the impact of inward FDI on the export performance of Sri Lanka during the period from 1980 to 2016. Auto Regressive Distributed Lag (ARDL) model and bound test are applied to identify the long-run relationship and short-run dynamics of the selected variables. The short-run causality is checked by applying the Granger causality test. The ARDL bound test confirms long-run relationship among the variables. The study finds positive insignificant long run and short-run relationships between FDI and exports in Sri Lanka for the data period. Exports are highly sensitive to GDP and real effective exchange rate in the short-run and to domestic investment in the long-run. In order to promote exports via FDI, government policy should focus on attracting more FDI by drawing attention to national competitiveness. The study suggests a comprehensive sector level investigation on the impact of FDI on export performance of Sri Lanka.