The Role of Foreign Aid in Stimulating Foreign Direct Investment Inflows : An Empirical Study with Reference to Sri Lanka

This paper empirically examines the foreign aid-FDI nexus. There appears to be a notion asserting that foreign aid plays a catalytic role in stimulating private capital inflows. The attempt in this paper is to examine the possible catalytic or deterring effects of foreign aid on FDI inflows with reference to Sri Lanka. We estimate a dynamic time series model that is derived from an economic model of determinants of FDI. The results demonstrate that foreign aid has a dynamic positive effect on FDI inflows