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A composite measure to determine a host country's attractiveness for foreign direct investment

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  • Groh, Alexander P.

    ()
    (IESE Business School)

  • Wich, Matthias

    (Darmstadt University of Technology)

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    Abstract

    We contribute to the question of why some countries are more attractive for foreign direct investment (FDI) than others by constructing a composite measure that describes a host country's attractiveness for receiving FDI. This index considers all identified major, measurable and, for our scope, comparable aspects that affect FDI decisions. As a result, we can rank 127 countries with respect to their FDI attraction. The index provides the possibility of conducting detailed strength and weakness analyses for all of our sample countries and regions. These analyses provide support to policy-makers to improve their country's attractiveness for receiving inward FDI. They also enhance the discussion of why FDI flows still remain concentrated in advanced economies and, additionally, in which areas emerging and developing economies have to improve in order to narrow the existing gap. We provide correlation and sensitivity analyses to test the quality of our composite measure. Additionally, we benchmark our index with several alternative indices. Thereby, we show that no other index tracks actual FDI activity more closely.

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    Bibliographic Info

    Paper provided by IESE Business School in its series IESE Research Papers with number D/833.

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    Length: 30 pages
    Date of creation: 05 Nov 2009
    Date of revision:
    Handle: RePEc:ebg:iesewp:d-0833

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    Postal: IESE Business School, Av Pearson 21, 08034 Barcelona, SPAIN
    Web page: http://www.iese.edu/
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    Keywords: Country Comparison; Composite Measure; Index; FDI;

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