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Determinants of FDI in Australia: Which Theory Can Explain it Best?

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Author Info
Isabel Faeth
Abstract

In this paper the determinants of FDI inflows in Australia, the second largest net importer of FDI in the developed world, are analysed using quarterly aggregate data for Q3/1985 to Q2/2002. FDI inflows are explained using market size, factor costs, transport costs and protection, risk factors, policy variables and other factors, i.e. variables based on a number of different theoretical models. It was found that Australian FDI is driven by longer term considerations and its determinants could not be fully explained by any single theoretical model. Exchange rate appreciation discouraged FDI in the medium-term, but had a positive longer term effect, indicating that FDI is encouraged by a sound economic environment. There was, however, no evidence that lower corporate tax rates increased FDI inflows.

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Paper provided by The University of Melbourne in its series Department of Economics - Working Papers Series with number 946.

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Length: 28 pages
Date of creation: 2005
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Handle: RePEc:mlb:wpaper:946

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Related research
Keywords: FDI Time Series Analysis

Find related papers by JEL classification:
F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models

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