Foreign investment can be a significant driver of growth and jobs in poor countries. Many of East Asia’s fastest-growing countries—Malaysia, Singapore, and Thailand—benefited from investment from abroad. However, foreign investment can also lead to instability, corruption, and exploitation.
The CDI gives credit to investment-promotion policies that are good for development. For example, do governments offer insurance against political risks to encourage domestic companies to invest abroad? Do they support international efforts to ensure transparency in extractive industries? While some rich-country policies may encourage positive foreign investment, others may facilitate illicit activities in developing countries, including corruption, tax evasion, and trafficking in guns, drugs, and people. Using data from the Financial Secrecy Index (FSI), the CDI recognizes countries that have regulations in place to promote transparency in financial transactions within their jurisdiction.
Finland, Sweden, Denmark, Spain, and Poland are top-ranking in the finance component because of their transparent financial sectors, support to investment in developing countries, and membership in the Extractive Industries Transparency Initiative (EITI). Switzerland places at the bottom as one of only three CDI countries without a national agency to offer political risk insurance (Ireland and New Zealand are the others). Switzerland also lacks regulations to promote financial transparency of companies and banks, as does Luxembourg, which has a poor financial transparency record and does little to identify investment opportunities in developing countries. Although Canada ranks at the top in support for investment, its relative lack of financial transparency brings down its overall score. Ireland and Greece are the poorest performers in investment support because they restrict pension-fund investments in developing countries, but they rank relatively well in financial transparency (Ireland scores in the top quintile of the FSI, Greece in the second quintile). Among the Visegrád countries, which do the least to stem bribery and corrupt investment practices, Poland stands out with its much better FSI ranking.
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