My research focuses on two related questions. First, do investing countries’ policies help or harm the environment of countries in which they choose to invest, and what is the level of the environmental degradation arising from export-driven industries depended upon foreign direct investment? Second, what are the related new dependency patterns in such developing countries as Sri Lanka? The major threats to the environment have come from the pollution associated with economic activities – agriculture, mining, manufacturing, and transportation. In the Third World, the threats to the environment are significantly greater than in the developing world, simply because of the lack of finances and innovative technology to deal with the increase in productive activity. For many investors, the developing world is a tempting region for their factories, because of cheap labor, access to inexpensive raw materials, lax environmental regulations and other investment friendly incentives offered by the host governments. Although it is a good idea to have trade between developed and developing countries, both the home and host countries must pay close attention to any negative environmental consequences that arise as a result of increase in manufacturing. Goods must be produced using clean technology. Raw materials must be extracted with consideration for future generations, and industrial waste must be discarded without destruction of the habitability of the planet. The theoretical perspective that informs this dissertation comes from development theory and dependency theory. Although development and dependency theories are often dismissed as outdated by globalists such as Jagdish Bhagwati, it is my judgment that when economic development in the Third World is discussed, this theoretical framework best fits the capitalistic development process that is occurring in these former colonial nations.