Performance Analysis of Vietnamese Provinces’ FDI Attractiveness: An Application of DEA and Malmquist Indexes

• Published in: SAGE open 2024-07, Vol.14 (3)
• Main Authors: Le, Thi-Nham, Dang, Thanh-Tuan
• Format: Article
• Language: English
• Subjects: Data envelopment analysis; Foreign investment; Provinces
• ISSN: 2158-2440; 2158-2440
• DOI: 10.1177/21582440241260505

Vietnam has emerged as a highly promising destination for foreign direct investment (FDI) projects, experiencing a commendable and consistent influx of FDI in recent years. However, this surge is not uniformly distributed across provinces. This study applies the data envelopment analysis (DEA) and Malmquist index measurement to evaluate FDI attractiveness of provinces in Vietnam from 2012 to 2020. Based on DEA, the analysis takes the provinces’ five indicators (Labor Force, Gross Regional Domestic Product, Provincial Competitiveness Index, FDI by capital, and FDI by cases) into account in order to identify provinces ripe for targeted improvement as well as those that can serve as exemplars for others. Next, Malmquist indexes are derived from DEA assessment to observe the evolution of each province during 2012 to 2020, and then decomposed to uncover the cause of performance change. We find that only four provinces are able to achieve perfect efficiency in attracting FDI, including three provinces from South East region: Vung Tau, Binh Duong, Ho Chi Minh, and Ha Tinh. Nevertheless, nearly 80% of the provinces improve their performance. The methodology and findings in this paper can provide significant insights for policymakers to devise mechanisms to attract FDI in their locality. Plain language summary This study contributes to the existing literature by analyzing the intertemporal efficiency change of the provinces in attracting FDI throughout the research period of 2012-2020, taking into account the significant differences in FDI attractiveness among destinations Vietnam confronts. To the best of our knowledge, Vietnam has not yet looked into utilizing the DEA and Malmquist index to examine the provinces’ FDI attractiveness. Another significant benefit of this research is the discovery of the reason of efficiency change by deconstructing the Malmquist index based on the DEA efficiency evaluation. Findings from the analysis can provide managerial insight and signifi-cant guidelines for local policymakers and the government to improve FDI attractiveness.