I was very surprised by the results of this recently released research from the OECD that ranks countries according to their openness to foreign direct investment (“FDI”). Entitled “OECD’s FDI Restrictiveness Index – 2010 Update“, the survey ranks countries from zero (completely open to FDI) to one (completely closed to FDI). The survey considers “four types of measures: equity restrictions, screening and approval requirements, restrictions on foreign key personnel, and other operational restrictions (such as limits on purchase of land or on repatriation of profits and capital). The discriminatory nature of measures is the central criterion to decide whether a measure should be scored.” The results from the survey can be seen in the chart below:
For me, the surprising results are that the US, Australia and Canada can be found ranked at 35, 38 and 41, respectively. The US ranks at such a low-level mainly due to equity ownership restrictions that apply to foreigners, particularly in the media, transport and utility sectors. Arguably equally surprising is the fact that Romania and Argentina can both be found among the world’s most open economies.
But what is the relevance of this? Well, openness to foreign investment should be regarded only as one of many policies that drive economic growth, alongside an educated workforce, strong institutions, a sound legal system, sensible fiscal and monetary policies, openness. This point is reinforced due to the fact that China, one of the world’s fastest-growing economies at present, is ranked at the bottom of the list. However, economic theory would suggest that all else being equal, a country should be able to improve its economic performance by increasing its openness to foreign direct investment.