Relative Profitability of Multinational Enterprises in a Developing Host Country: The Sri Lankan Experience

Multinational enterprises (MNEs) have played a vital role in the economies of developing countries. However, empirical studies on some crucial aspects of MNE involvement in these economies appear to be inadequate. One such aspect is the profitability of MNEs vis a vis indigenous enterprises. Therefore, covering a wider spectrum of individual country situations is needed in order to broaden our understanding of this aspect of MNE operations. This paper attempts to shed some light on this aspect through an analysis of balance sheet data of a sample of MNE affiliates operating in the manufacturing sector of Sri Lanka. The empirical analysis of this study does not support the generally held view that MNEs are more profitable than their local counterparts. It reveals that profitability is not influenced simply by the origin of control or multinationality of investment when other factors such as the nature of industry and the age of firms are taken into account.