As the foreign direct investment (FDI) attractiveness indexes constitute one of the decision tools for governments' politics, it is relevant to assess the Groh and Wich Index (GWI). The main purpose is to verify the capacity of this index to replicate the phenomena of inflow FDI. The index analysis process included reviewing literature and detecting weaknesses on theoretical frameworks and in the selection of basic indicators. Multivariate analysis, applied to a sample of economies, showed evidence that some composite indicators of the GWI have shortages of concordance between simple indicators. Apart from showing that FDI attractiveness index of Groh and Wich does not convey the progress of inflow FDI, the study demonstrates that a FDI attractiveness index built to advanced economies can hardly be employed to developing economies without significant changes to the basic indicators.
TopIntroduction
The study of Foreign Direct Investment (FDI) has been assuming a relevant important role in the sustainable development of the countries, in result of being one of the least volatile sources of international investment for host countries and the most dependable source of foreign investment for developing countries. The relevant issue for policy makers in countries starving capital concerns the determinants of FDI attraction (Moosa & Cardak, 2006). To make this task easier, there has been created some knowledge aggregators that includes composite indicators. One of those aggregators is the one authored by Groh and Wich (2009), who constructed an FDI attractiveness index that captures the business attractiveness of more than 100 countries. The task of this chapter corresponds to appraise the consistency of Groh and Wich’s (2009) index on describing the phenomenon of business attractiveness.
Some of the benefits of the positive impact of FDI correspond to technology transfer, introduction of new production processes and productivity gains (Barros, 2009). Despite the profuse literature there is a need to rationalise the knowledge about the factors of FDI attraction. Until now, there has been an inability to determine, based on complete data collected, the FDI attractiveness in a given country (Teixeira & Tavares-Lehmann, 2007). To improve this scenario, some authors, as Groh and Wich (2009) developed FDI attractiveness indexes able to rank 127 countries. Therefore, it is very useful evaluating the consistency of the Groh and Wich (2009) to formally describe the FDI attractiveness phenomenon.
Our study should consider the Organization for Economic Cooperation and Development (2008) considering its operational knowledge on how FDI should be measured and its global standards for FDI statistics. FDI is a key element for quick engagement and international economic integration and provides the means to create direct links, stable and long-lasting between two economies. A right policy environment can serve as an important vehicle for local development and can also help to improve the competitiveness of both sides (country of origin and the host country of FDI). FDI particularly encourages the transfer of technology and know-how between economies and provides an opportunity for the economy of the country of origin to promote its products more broadly in the international market (Amaral, 2013).
The global flow of FDI has grown over the last 30 years and continues to play a primary role in production activities of developed countries which captured roughly 75% in 2008 of the global FDI flows (UNCTAD, 2008). Recently, UNCTAD (2012) revealed that the percentage of total FDI incoming flow absorbed by the developing countries has improved by then. The evidence of a substantial FDI growth in recent years reflect an intensification in the number of transactions, and in its value, and can be interpreted as an entrepreneurial purpose to diversify businesses across economies and industrial sectors OECD (2005, 2008). Multinational enterprises (MNE) are traditionally the major players in each FDI transaction. This development has coincided with the increasing of the MNE's propensity to participate in the international market. The MNEs appear to be the main players in FDI transactions, resulting this role from the growing propensity of the MNEs to act as global market players (Amaral, 2013).