Openness and the International Allocation of Foreign Direct Investment

Jan 2006
Liberalizing measures have been outnumbering by far the introduction of greater restrictions. However, the reports are silent on how liberal the policy regimes of individual countries really are and how they have been changing over time. This paper tackles this issue. The authors propose an ordinal index of the degree of openness of foreign direct investment (FDI) regimes, which they measure for 111 countries, both developed, developing, and in transition. They show the evolution of the index between 1990, 1996, and 2002 in three developing regions (Africa, Asia and Latin America), in transition economies, and in developed countries. The paper also includes a presentation of the result of a simple econometric exercise that attempts to explain the variation across countries and time periods of FDI inflows in 1990, 1996, and 2002 using five explanatory variables. Finally the authors explore the factors that explain the probability that a country will resort to restrictions on FDI.