Abstract
The most significant development in international economic relations during the past two decades or so has been the spectacular rise in power and influence of multinational corporations. They have been seen as international carriers of capital, technology and skilled labour throughout the world. But it is difficult to calculate the distribution of benefits of international production between foreigners and nationals. Multinational corporations carry with them technologies of production, tastes and styles of living, managerial services and drives business practices such as advertising and the phenomenon of "transfer pricing". This paper focuses on the role of multinational corporations as a vehicle for foreign direct investment in developing countries with special emphasis on Sri Lanka. The paper highlights the reasons for corporate governance failures in some East Asian economies and highlights the need for corporate governance for foreign direct investment to have long-term benefits to the host countries. The paper concludes that FDI can be an important stimulus to economic and social development in Sri Lanka as long as the Multinational Corporations and host countries policies coincide to a larger extent. This may be possible with selective capital account liberalization in order to pursue with the interest of Sri Lanka's development objectives.