Abstract

This paper attempts to answer two questions. First, is foreign investment good for the host country? Second, what factors are associated with greater foreign investments? To answer the first question, this study calculates the global stock market integration scores of a sample of 41 countries, and it finds that this integration is associated with greater per capita income, stronger growth in income, and higher levels of natural capital and produced capital. In addressing the second question, this study finds that the risk-adjusted return does not influence the foreign investment decision; rather, it is the rule of law–the host country’s ability to ensure the safety and mobility of foreign capital–that is the primary driving force for foreign investments.

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