Foreign direct investment: robustness analysis of an attractiveness index

Abstract

One of the most heavily employed tools to define countries' policies are the attractiveness indexes. The main purpose of our paper is to formally verify the capacity of an attractiveness index to describe the phenomenon of Foreign Direct Investment (FDI). Severe weaknesses were detected through the use of a framework (principal components analysis and Cronbach's alpha reliability) to analyse indexes, regarding the theoretical background and the adequate selection of indicators, especially the ones from the bottom. Additionally, the study demonstrated that the analyzed FDI attractiveness index built to formally aggregate the factors that impacts foreign direct investment can hardly be applied to emerging economies.