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

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  • Isabel Faeth
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    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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    Bibliographic Info

    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
    Date of revision:
    Handle: RePEc:mlb:wpaper:946

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    Keywords: FDI; Time Series Analysis;

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    Cited by:
    1. Phillips, Shauna & Ahmadi-Esfahani, Fredoun Z., . "Exchange Rates and Foreign Direct Investment: Theoretical Models and Empirical Evidence," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society.

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