The determinants of FDI choices: The importance of investment climate and clustering

Abstract

Recent work on factors that determine the choices made by foreign investors within and across countries has been growing rapidly – see Mukim and Nunnenkamp (2012) for a comprehensive review. However, the cross-country literature on how the investment climate affects decisions made by foreign investors using robust methodological approaches is lacking. Indicators of foreign investment regulation that has been standardised across countries could lend itself for different types of empirical analysis. This paper will use data made available by the Investing Across Borders database of the World Bank Group, to study how the investment climate across sectors and countries affects the choice of new investment projects across different countries.