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Globalisation and Multinational Foreign Direct Investment – Australian Insights

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Abstract

Globalisation or the international integration of production and distribution has accelerated over the past two decades. Multinational enterprises (MNEs) or the transnational corporations (TNC) through foreign direct investment (FDI) have played a key role in the globalisation process. This paper reviews the role of MNE-FDI in the globalisation process both from the standpoint of trade theory and eclectic paradigms of FDI. The adequacy of the neoclassical inter-industry trade paradigm in explaining FDI flows is critically reviewed and the prognostication that MNE-FDI could be substituting trade to a host country is examined. Besides new trade theories based on monopolistic competition and intra-industry trade predict that MNE-FDI could be complementing trade to a host country. The controversy relating to MNE-FDI as causing trade substitution and complementation is resolved empirically in this paper using vector autoregression (VAR) econometrics. A VAR model is applied to Australian quarterly time-series data and innovation accounting and Granger causality tests are shed light on FDI-trade substitution and complementarity effects in the context of globalisation during the study period 1983(4)-i 996(3). The paper also comments on the national policy implications of MNE-FDI flows.

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  • Karunaratne, Neil Dias & Tisdell, Clement Allan, 1998. "Globalisation and Multinational Foreign Direct Investment – Australian Insights," Economia Internazionale / International Economics, Camera di Commercio Industria Artigianato Agricoltura di Genova, vol. 51(4), pages 531-553.
    • Handle: RePEc:ris:ecoint:0291
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    Cited by:

    1. Zac Rafidi & George Verikios, 2022. "The Determinants of Foreign Direct Investment: A Review and Re‐Analysis of Evidence from Australia," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 55(1), pages 71-90, March.
    2. Isabel Faeth, 2005. "Determinants of FDI in Australia : Which Theory Can Explain it Best?," Department of Economics - Working Papers Series 946, The University of Melbourne.

    More about this item

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements

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