Foreign direct investment can be considered an indispensible approach of development financing   a developing country such as Sri Lanka with huge saving investment gap limited although growing revenue to gross domestic product ratio and inadequate amount of foreign aid flow. Traditionally  Foreign Direct investment is  considered as  foreign investments  in  manufacturing and  services segments  which  contribute to  create  employment opportunities  and  economic growth. Host countries are continuously attracting FDI for the purpose of meeting financial  requirements for large infrastructure projects.   During the past,  foreign investors were not interested in  investing due to the risks associated with   similar large projects resulting from long pay back durations.  In this context, Sri Lanka   eagerly expecting   investments   to  all sectors and  reasons behind are  apparently  severe deficiency of resources in order to financing infrastructure. It is extremely significant that the sector infrastructure and it must be noted that utilizing of foreign investment for a country   like Sri Lanka is crucial.  It is a tool to bring from rich or developed countries   the much needed  technology  to Sri Lanka.  In the same manner,   leadership and managerial competence transferred from developed countries and subsequent expansion of local skills whether at the enterprises level or at the sector level can be considered   to have positive impact.  There are so many conditions that have to be put in place to attract FDI  including consistent macro Economic polices, good governance, consistent market friendly polices, guarantee of property rights, the rules of law, economic stability and  absence of corruption etc. among other prerequisites.  It is significant and crucial to ensure an attractive investment climate in Sri Lanka in order to attract foreign direct investment.

In spite of the slow recovery  from the economic downturn in  2008-2009  period  and uncertainties in  specifically  developed countries or European  countries are   accounted for 52%  of  foreign  direct investment  flow in 2011  as per the  World Investment Report – 2011.  This report highlights the amplifying   involvement of multi-national companies in  the segment of infrastructure of developing countries and  development of regulatory infrastructure and reforms are not in line with the inflow of foreign direct investment.

Inflows of foreign direct investment to South Asia is concerned subsequent to a fall during the period of 2009- 2010 and  they have made a turn around and  have now reached  US$ 39 billion. Reason for this is foremost rising inflows to India which is accounted for four fifth  of the foreign direct investment of the South Asia.  As such, it is apparent that FDI is not equally distributed among the countries in the Asian region.

It can be noticed that during last thirty years remarkable increase in foreign investment flow to Sri Lanka.  From US$ 47 million in 1979 to US$ 955 million in 2011 achieved by Sri Lanka   when compared with the other countries in the region is a remarkable performance.  Therefore,  the pragmatic  examination  of the energetic  interactions between FDI, infrastructure and economic growth is significant for researchers and  policy makers  in Sri Lanka and  for other developing countries  to  inquire the  effectiveness of liberalization policies  on foreign direct investment an infrastructure development  for the purpose of  economic prosperity.

During the recent past growth rates of foreign direct investment is remarkable but it is not satisfactory and there is scope for further growth. In terms at the beginning growth rate was from very low base and therefore seemingly higher growth rate in percentage wise do not actually interpret into satisfactory levels of investment. Again there is remarkable unexploited potential for pull towards to Sri Lanka.  This can be implemented through serious and concentrated endeavors from the part of stakeholders of Sri Lanka. In this background,   purpose  of  this study is to  discover  openings and  challenges for  attracting  foreign investment  for the purpose of  economic  growth of Sri Lanka  and  recommendations to be made in this endeavor. This assignment  is  included three segments   and  part I  is  introduction  while    part  II  is  discussion of  present standing  of  foreign direct investment and  shrink  trends and development repercussions and  final part III is  describes the  present standing of  the world   together with conclusion.