Study on the factors affecting private investments in Sri Lanka

Abstract

Today it’s widely accepted that private sector is a key engine of economic growth in any country across the globe. As a part of private sector, private investments also plays a greater role particularly within developing countries who are very much in need of capital resources as well as skilled labor, new technology and innovation in achieving faster growth. Sri Lanka still being a developing country is no exception to this. Therefore, considering the role of private investments in Sri Lanka, this study aims to identify the factors affecting private investments within Sri Lankan economy. The study was based on secondary data covering the period from 1975 to 2015. Findings derived from regression model and correlation coefficients of the study have revealed that real GDP growth, real exchange rate, inflation rate, budget deficit, foreign trade, foreign direct investment and liberalization factor are positively associated with private investments. It has further been identified that out of all the independent variables, foreign direct investment is the most affecting factor to private investments in Sri Lanka whereas the liberalization factor is the least affecting factor. The relationship between liberalization factor and private investments denotes the less importance of export and import industry in determining private investments in Sri Lanka. Therefore, in conclusion, this study emphasizes that foreign direct investment, real exchange rate and foreign trade play significant roles as factors in determining private investments.