DEA analysis of FDI attractiveness for sustainable development: Evidence from Chinese provinces

The paper extends the Malmquist productivity index to establish a theoretical model to evaluate foreign direct investment (FDI) attractiveness. This model and its implementation mechanism consider cost efficiency and profit efficiency changes that represent the influence of price level on inputs and outputs respectively. Using data from China from 1997 to 2008, we assess the attractiveness of FDI in terms of human capital stock, material capital stock, energy consumption situation, and degrees of market openness. We use data envelopment analysis to find the bottleneck of FDI attractiveness and to identify the potential market of each province. This study contributes to the literature by providing sound investment advices to multinational corporations. It also offers policy advice and guidelines to developing nations for setting policies and programs to attract FDI. Specifically, our results provide useful inputs for policy makers to create a mechanism design to attract FDI in the host country.