Abstract
We contribute to the question of why some countries are more attractive for foreign direct investment (FDI) than others. Therefore, we construct 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 policymakers to improve their country’s attraction for receiving inward FDI. They also enhance the discussion of why FDI flows still remain concentrated in advanced economies, and additionally, about the areas in which 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 better tracks actual FDI activity