A good investment climate helps in the overall growth and development of the economy. Foreign investors find it lucrative to invest their capital in countries that have a healthy investment climate. This article examines certain strategic issues that find prominence in addressing such concerns.

Sometimes, research findings can really be baffling. Recently, a couple of reports generated by internationally acclaimed financial institutions have thrown light on certain issues that need to be addressed with greater details. Let us first begin with the World Investment Report (WIR) 2005 brought by the United Nations Conference on Trade and Development (UNCTAD). This annual report provides a detailed picture of foreign capital flows in various countries across the globe and also makes an attempt to identify the shortcomings on the part of those countries that were incapable of attracting foreign capital. The latest report provides a near expected comparison between the Foreign Direct Investment (FDI) in India and China. The report draws a clear picture which shows China surging ahead and India struggling to catch up with the rest in the league. If one stops the analysis at this point of time, it may lead to a preconceived conclusion. Let us now turn our attention to yet another report published by the World Economic Forum's (WEF) `The Global Competitiveness Report'. The report seeks to provide an understanding on the primary economic issues that confront an economy and relate to its investment climate. According to the latest report, China and India occupy the 49^th and 50^th position respectively as per the Growth Competitiveness Index (GCI) rankings are concerned. More surprisingly, as compared to the previous year, China has slipped three ranks and India has come up five slots. If the authenticity of the report is not questioned, then one can definitely ask what constitutes a good investment climate for any nation. Is it the macroeconomic fundamentals or does herd mentality drive the institutional investors? Let us explore some of the driving forces of a country's investment climate.

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