Examining the Determinants of China’s Inward FDI Using Grey Matrix Relational Analysis Model

Grey relational analysis (GRA) model is an important part of grey system theory, which is used to ascertain the relational grade between an influential factor and the major behavior factor. Most of GRA models are mainly applied to the field in which the behavior factor and influential factor are the cross-sectional or time series data in a given system. However, owing to the panel data contains plenty information including individual and time characteristics, the traditional GRA model cannot be applied to panel data analysis. To overcome this drawback, the grey matrix relational analysis model is applied to measure the similarity of panel data from two dimensions of individual and time on the basis of the definition of the matrix sequence of a discrete data sequence. This paper examines the determinants of inward foreign direct investment (IFDI) in China using grey matrix relational analysis model. The study finds that the GDP per capita, enrollment of regular institutions of higher education, and internal expenditure on R&D are the key factors of IFDI.