Developing the Methodology of Assessing the Potential of Countries to Attract Foreign Direct Investment

Abstract

To accelerate the transformation process in all spheres of economic and social life the relevance of the adequate assessment of the countries’ investment potential was determined in this article. The innovation process has a high impact on the investment potential of the countries through every sector of the economy. As a result, the countries competitiveness depends on the level of technological innovation. The scientific methodological approach to the estimation of countries' investment potential by the adoption of Hurst exponent was proposed. It is based on the magnitude of the accumulated deviation and reflects the economic essence of the concept of potential. As the time series in Hurst exponent calculation, the theoretical (predictive) values of the global attractiveness index were taken. It was determined by the econometric model of the dependence of the effective feature on five integral indicators of the following groups: infrastructure, science and education, ecology and human health, technology, socio-economic conditions. The integrated indexes for each group were calculated by normalizing the input dataset using the relative method, narrowing it with the relative scatter method and generalization with the arithmetic mean. The five-factor nonlinear regression model of the dependence of the global foreign direct investment attractiveness index on five integrated indexes of the groups was created with the Cobb-Douglas function. The calculations were performed for countries such as United States, United Kingdom, Germany, France, Spain, Estonia, the Czech Republic, China, Poland, the Slovak Republic, Romania, Ukraine. This study shows that at the present moment the Slovak Republic, Ukraine and the Czech Republic have the highest investment potential. Therefore, the value of the proper indicator is equal to 60%. At the same time, the lowest investment potential shows the United Kingdom, Spain and Poland, where unused investment opportunities are less than 40%. The obtained results let us define further development opportunities and establish the mechanism for directing the financial resources to the country. Keywords: Cobb-Douglas production function, FDI, the Hurst exponent, investment appeal, the potential for inward foreign direct investment, regression analysis.