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

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  • 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.

Suggested Citation

  • 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.
  • Handle: RePEc:mlb:wpaper:946
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    File URL: http://www.economics.unimelb.edu.au/downloads/wpapers-05/946.pdf
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    Cited by:

    1. Madanmohan Ghosh & Peter Syntetos & Weimin Wang, 2012. "Impact of FDI Restrictions on Inward FDI in OECD Countries," Global Economy Journal (GEJ), World Scientific Publishing Co. Pte. Ltd., vol. 12(3), pages 1-26, August.
    2. Monarch, Ryan & Park, Jooyoun & Sivadasan, Jagadeesh, 2013. "Gains from Offshoring? Evidence from U.S. Microdata," Working Papers 635, Research Seminar in International Economics, University of Michigan.
    3. Shauna Phillips & Fredoun Z. Ahmadi-Esfahani, 2008. "Exchange rates and foreign direct investment: theoretical models and empirical evidence ," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 52(4), pages 505-525, December.
    4. Rudra P Pradhan, 2011. "Determinants of Foreign Direct Investment in SAARC Countries: An Investigation Using Panel VAR Model," Information Management and Business Review, AMH International, vol. 3(2), pages 117-126.
    5. Monarch, Ryan & Park, Jooyoun & Sivadasan, Jagadeesh, 2017. "Domestic gains from offshoring? Evidence from TAA-linked U.S. microdata," Journal of International Economics, Elsevier, vol. 105(C), pages 150-173.
    6. Phillips, Shauna & Ahmadi-Esfahani, Fredoun Z., 2008. "Exchange Rates and Foreign Direct Investment: Theoretical Models and Empirical Evidence," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 54(4), pages 1-21.

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    More about this item

    Keywords

    FDI; Time Series Analysis;

    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; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes

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