Sri Lanka is a developing country that is currently on the recovery path from 30 years of civil war. With the conclusion of hostilities in 2009, one of the main priorities of the Sri Lankan government has been to focus on major infrastructure improvements to boost its economic development. It has huge external debt stocks and low gross domestic savings. Sri Lanka considers attracting foreign direct investment (FDI) inflows as one of the strategies for sourcing funding for its major infrastructure projects, as it has been an important source of external financing for Sri Lanka since the introduction of the open economic policy in 1977. Therefore, understanding the role of FDI in the Sri Lankan economy is crucial for academic researchers and policy makers in the government and private sectors. A review of previous research studies on FDI in Sri Lanka clearly shows that there is a lack of knowledge relating to FDI and its effects on the Sri Lankan economy. Therefore, the main focus of the thesis is to examine the impact of FDI on the Sri Lankan economy as a whole, as well as on the individual sectors of the Sri Lankan economy.