A Composite Measure to Determine a Host Country's Attractiveness for Foreign Direct Investment

30 Pages Posted: 11 Feb 2010

See all articles by Alexander Peter Groh

Alexander Peter Groh

EMLYON Business School

Matthias Wich

affiliation not provided to SSRN

Date Written: November 24, 2009

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.

Keywords: FDI, Country Comparison, Composite Measure, Index

JEL Classification: F15, F21, F43, O16, O57, P52, R11

Suggested Citation

Groh, Alexander Peter and Wich, Matthias, A Composite Measure to Determine a Host Country's Attractiveness for Foreign Direct Investment (November 24, 2009). IESE Business School Working Paper No. 833, Available at SSRN: https://ssrn.com/abstract=1550717 or http://dx.doi.org/10.2139/ssrn.1550717

Alexander Peter Groh (Contact Author)

EMLYON Business School ( email )

23 Avenue Guy de Collongue
Ecully, 69132
France

Matthias Wich

affiliation not provided to SSRN ( email )

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