It is a known fact that an imperative mode for a developing nation to achieve rapid economic growth and development is by focusing on enhancing and bettering their export-lead growth policies. However, it is of the wrong to assumption to perceive that promoting exports is the only means of ensuring a speedy economic growth as there are other strategies that could be adopted in order to successfully augment the income of a country.

Advantages of Foreign Direct Investment (FDI) Policy

I don’t agree with the statement that the only path for economic development in a developing country is through the promotion of exports. There are other means and options for growing the economy; a significant procedure involves the process of opening up the country to foreign direct investments (FDI). Foreign direct investments are seen as an effective means of fostering growth in developing countries. It is considered as an engine of growth in mainstream economics and it is recognized not only in terms of capital formation, but also for its spill over effects on trade and technological progress. In addition to the direct capital financing its supplies, FDI can help to jumpstart an economy due to the numerous benefits received by the host country by executing this policy. Such benefits include the transfer of technology and management known-how, creation of employment, increased domestic competition, introduction of new processes and employee training related to the manufacturing etc. Also, foreign investment can aid in bridging a host country’s foreign exchange gap. These benefits are very essential for developing countries to industrialize, develop and create jobs; there by attacking the poverty situation in their country. As noted by the World Bank (2002), quite a few recent studies concluded that FDI can promote the economic development of the host country profoundly by assisting to improve productivity growth.

Data & Proof of the Foreign Direct Investment in Sri Lanka

In the period of 1970s, international trade grew more speedily than FDI and thus international trade was by far more prominent than most other important international economic activities. This state of affairs altered radically in the middle of the 1980s, when world FDI began to increase sharply. In this period, the world FDI has amplified its importance by transferring technologies and establishing marketing and obtaining networks for proficient production and sales internationally (Shujiro Urata, 1998) . The share of developing countries in world FDI inflows and outflows has risen from 17.4% in 1985-90 to 26.1% during 1995-2000.

Sources: Exports: IMF (2003), FDI Outflows: UNCTAD (2002).

The above figure shows that since 1980, the growth of worl