Evidence on Perceptions and Foreign Investment

June 20, 2011

Does nation branding have economic significance? Via Nation Branding we learn of a German study that claims that a one point rise in your score on the Anholt Nation Brands index leads to a 27% increase in foreign direct investment. This sounded a bit too good to be true so I’ve tracked down the published version of the research.

Kalamova and Konrad are interested in the impact of investor perceptions on FDI decisions relative to economic fundamentals. They look at FDI flows and statistically test the extent to which these patterns can be explained by standard economic models and by the impact of perceptions. They find that a one point rise in your NBI score is associated with a 27% greater FDI flow above what would be predicted by the standard economic model. I think that this is an important qualification – the article is not saying that a 1 point increase in perceptions will make your flow 27% regardless of everything else. This relationship is statistically significant at the 1% level which implies a very strong association.

I’m convinced that perceptions do matter but I’m a bit sceptical about the size of the effect. FDI flows tend to be quite volatile and for smaller countries single investment decisions can have a big impact on the overall figures. For this reason it would be really helpful to have the study extended to cover more than two years. It’s also worth emphasizing Anholt’s point that the NBI is measuring a whole set of factors including things like governance and economic conditions so an improvement in NBI is assumed to be based on more than nation-branding as advertising.

Kalamova, M.M., and K.A. Konrad (2010) ‘Nation Brands and Foreign Direct Investment’, Kyklos, 63: 400-31.



  1. I agree that the precise relationship between FDI and NBI is of course shaky…but I was thinking several days ago about the interdependence of the state of the economy and the nation brand in the Greek case (it’s a bit unfortunate Greece is not part of the NBI…). My short blog post on the topic can be found at http://happysisyphus.tumblr.com/post/6655408479/financial-crisis-and-greek-nation-branding (just germs of thought without any academic orientation really).

  2. Hi Robin, thanks for the link to my article and also the important clarification!

    I generally agree with your scepticism about the exact relation between nation branding and FDI (and I wouldn’t put too much emphasis on this figure). Nevertheless, I think the study is an important contribution as I believe that nation branding is often a fuzzy concept and studies like this help to focus and actually measure success.

    There’s also another point in the study that I found even more interesting than the 27% figure: FDI is not only triggered by “hard” factors but also by soft issues like culture etc. I think that governments should be much more aware of the “soft power” that they have at their disposal!

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: