investments -- and for which industries these constraints bind or not – a benchmarking tool using 163 indicators (including Doing Business and WEF indicators) for 140 countries was developed. The selection of the indicators, however, was only based on expert judgment.

Building on these earlier efforts, we propose in this paper a novel empirical methodology to identify factors associated with respectively foreign investment decisions and international trade success, using publicly available data measuring the environment in which trade and investment happen, with the following aims:

- Reduce the dimensionality of the universe of indicators to a subset of indicators that are significantly associated with trade and investment outcomes (“success”).

- Robustly identify the subset of indicators.

- For the selected subset of indicators, benchmark country and sector performance against the rest of the world and take initial steps toward the building of a predictive model of trade and investment “success”.

This empirical strategy is ultimately designed to help policy makers and economic actors improve their strategic focus on the variables that have the greatest impact on their economic objective, and possibly on sector specific interventions with the greatest value for money.

A review of commonly used investment and trade climate indicators and identification of the strategy environment for trade and investment There is a vast empirical literature investigating the drivers of trade and investment outcomes. We review here briefly the main empirical strategies and analytical frameworks that are the most commonly used in the policy literature, reflecting on the considerable growth of available information on indicators tracking factors of trade and investment climate, while also noting some of the limitations of currently used approaches.

# • Drivers of investment climate and business environment

Derived from the new comparative economics literature, investment climate and business environment indicators rankings aim to exhaustively benchmark the private sector or investment climate environment at the country level. For each country, the performance on individual attributes relative to the rest of the world and best performers is being recorded. The Doing Business Indicator series, which was prepared annually by the World Bank Group between 2003 and 2020 measures 11 different areas using 41 indicators for 180 economies.<sup>6</sup> For each area, each country’s performance is measured by a score indicating the country’s level relative to best practice (Distance to Frontier indicator).<sup>7</sup> Another widely used set of indicators are the Global Competitiveness Indicator (GCI) series prepared annually by the World Economic Forum since 2007. The WEF strategy is to gather existing indicators (including Doing Business ones) alongside own perception surveys of executives. Its 2017-18 edition covers 12 areas of

> 6 The areas are: starting a business, dealing with construction permits, getting electricity, registering property, getting credit, protecting minority investors, paying taxes, trading across borders, enforcing contracts, resolving insolvency and labor market regulations.

> 7 The methodology of the Doing Business indicators was updated in 2015 to adopt the DTF measure, which measures progress over time over the previous ordinal ranking measure.

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