Multi Criteria Decision Making Model for evaluation of selected developed counties priority for FDI from United States

ABSTRACT: The objective of this study is to evaluate the relative priority of nine developed countries (Australia, Canada, Germany, Ireland, Japan, Luxembourg, Netherland, Switzerland, and United Kingdom) as a home country for foreign direct investment (FDI) from the United States’ vantage point over the three periods of the economic pre-crisis (2004-2006), crisis (2007-2009), and post-crisis (2010-2012). This study suggests a methodology based on a combination of the analytic hierarchy process (AHP), the technique for order preference by similarity to ideal solution (TOPSIS), and the multi-period multi-attribute decision-making (MP-MADM) technique. Fifteen FDI determinants were selected from the latest studies (the study employed HeckitBMA methodology to induce selection bias and resolve the model’s uncertainty surrounding the validity of the FDI theories), namely: bilateral distance, colony, common language, host countries’ market size, development, GDP growth, market potential, productivity, tax, corruption risk, internal conflict risk, religious tension risk, trade agreements (LAIA, APEC), and currency union (dollar). The AHP method was applied to prioritize the set of FDI determinants. The TOPSIS method was employed to evaluate the attractiveness of nine alternative countries for FDI during three spans of time. Meanwhile, the MP-MADM method was used to aggregate the related data from each period. The results show that during the pre-crisis period, Japan has won the best destination for the U.S. to increase direct investment. Canada, Germany, Luxembourg, Australia, the United Kingdom, Ireland, Switzerland, and the Netherlands follow Japan sequentially during this period. However, during the crisis, the priority set changes to Australia, Japan, Germany, Canada, the United Kingdom, Luxembourg. Turning to the post-crisis period, Japan becomes the first priority for the U.S. for FDI, and Germany, Canada, the United Kingdom, Australia, Luxembourg, Switzerland, Ireland, and the Netherlands rank sequentially after Japan. Keywords: Foreign direct investment, Analytic hierarchy process, Technique for order preference by similarity to ideal solution, Multi-period multi-attribute decision making. …………………………………………………………………………………………………………………………