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

Isabel Faeth

No 946, Department of Economics - Working Papers Series from The University of Melbourne

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.

Keywords: FDI; Time Series Analysis (search for similar items in EconPapers)
JEL-codes: C22 F21 (search for similar items in EconPapers)
Pages: 28 pages
Date: 2005
New Economics Papers: this item is included in nep-fdg and nep-ifn
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Citations: View citations in EconPapers (7)

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