International financial competitivenessand incentives to foreign direct investment

In this paper an index of financial competitiveness is calculated that corresponds to themarket-to-book ratio of inward FDI stocks. For a panel of five advanced economies from1980 to 2006 it is shown that price competitiveness, stable inflation rates and registeredpatents have a positive impact on the index. Institutional factors like EMU membership orAnglo-Saxon legislation also play a role. Financial competitiveness in turn encourages FDIinflows whereas it benefits fixed investment relative to M&A. There is also some evidencethat an innovative environment accelerates investment decisions by promoting competitionamong investors...