Globalisation and Multinational Foreign Direct Investment – Australian Insights

Neil Dias Karunaratne () and Clement Tisdell
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Neil Dias Karunaratne: The University of Queensland, Department of Economics, Postal: Brisbane, St. Lucia, QLD 4072, Australia, http://www.uq.edu.au/economics

Economia Internazionale / International Economics, 1998, vol. 51, issue 4, 531-553

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.

JEL-codes: F21 (search for similar items in EconPapers)
Date: 1998
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:ris:ecoint:0291

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