How trade and foreign investment affect the growth of a small but not so open economy: Australia?

Kris Iyer, Alicia Rambaldi () and Kam Ki Tang

Applied Economics, 2009, vol. 41, issue 12, 1525-1532

Abstract: This article analyses the impact of trade and foreign investment on a small but not so open economy, Australia, whose growth rate outpaced the majority of the OECD countries in the last decade. We model five channels of outward orientation: exports, imports, foreign direct investment, foreign portfolio investment and other foreign investment. A cointegrated vector autoregressive model, complemented by a robust Granger noncausality test, is specified to identify permanent channels of outward orientation. Imports and direct investment are found to have a growth effect in the long run. The effect of imports is almost three times that of direct investment.

Date: 2009
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DOI: 10.1080/00036840601032177

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