IDEAS home Printed from https://ideas.repec.org/a/bla/ausecr/v55y2022i1p71-90.html
   My bibliography  Save this article

The Determinants of Foreign Direct Investment: A Review and Re‐Analysis of Evidence from Australia

Author

Listed:
  • Zac Rafidi
  • George Verikios

Abstract

Foreign direct investment (FDI) is foundational to economic growth. Despite this, the Australian empirical literature is limited. Therefore we examine the empirical determinants of Australia's inflow of FDI to understand the factors that motivate FDI. Using autoregressive distributed lag models, the study also highlights how these determinants change across time. While inward FDI can be explained by various theories it is most effectively understood by Dunning's Ownership, Locational and Internalisation framework. Therefore, the factors most important in Australia to attracting FDI are monetary policy, productivity, a competitive tax structure, labour market flexibility and costs of trade and investment.

Suggested Citation

  • Zac Rafidi & George Verikios, 2022. "The Determinants of Foreign Direct Investment: A Review and Re‐Analysis of Evidence from Australia," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 55(1), pages 71-90, March.
    • Handle: RePEc:bla:ausecr:v:55:y:2022:i:1:p:71-90
    DOI: 10.1111/1467-8462.12443
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/1467-8462.12443
    Download Restriction: no
    File URL: https://libkey.io/10.1111/1467-8462.12443?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Makin, Anthony J. & Ratnasiri, Shyama, 2015. "Competitiveness and government expenditure: The Australian example," Economic Modelling, Elsevier, vol. 49(C), pages 154-161.
    2. Severn, Alan K, 1974. "Investor Evaluation of Foreign and Domestic Risk," Journal of Finance, American Finance Association, vol. 29(2), pages 545-550, May.
    3. Koen De Backer & Leo Sleuwaegen, 2003. "Does Foreign Direct Investment Crowd Out Domestic Entrepreneurship?," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 22(1), pages 67-84, February.
    4. Simon Guttmann & Anthony Richards, 2006. "Trade Openness: An Australian Perspective," Australian Economic Papers, Wiley Blackwell, vol. 45(3), pages 188-203, September.
    5. Markusen, James R. & Venables, Anthony J. & Eby Konan, Denise & Zhang, Kevin H., 1996. "A Unified Treatment of Horizontal Direct Investment, Vertical Direct Investment, and the Pattern of Trade in Goods and Services," Working Paper Series 465, Research Institute of Industrial Economics.
    6. Borensztein, E. & De Gregorio, J. & Lee, J-W., 1998. "How does foreign direct investment affect economic growth?1," Journal of International Economics, Elsevier, vol. 45(1), pages 115-135, June.
    7. Karunaratne, Neil Dias & Tisdell, Clement Allan, 1998. "Globalisation and Multinational Foreign Direct Investment – Australian Insights," Economia Internazionale / International Economics, Camera di Commercio Industria Artigianato Agricoltura di Genova, vol. 51(4), pages 531-553.
    8. Raymond Vernon, 1966. "International Investment and International Trade in the Product Cycle," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 80(2), pages 190-207.
    9. Peter J. Buckley & Mark Casson, 1991. "The Future of the Multinational Enterprise," Palgrave Macmillan Books, Palgrave Macmillan, edition 0, number 978-1-349-21204-0.
    10. G. D. A. MacDougall, 1960. "THE BENEFITS and COSTS OF PRIVATE INVESTMENT FROM ABROAD: A THEORETICAL APPROACH," The Economic Record, The Economic Society of Australia, vol. 36(73), pages 13-35, March.
    11. J. Tobin, 1958. "Liquidity Preference as Behavior Towards Risk," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 25(2), pages 65-86.
    12. Oana Cristina Popovici & Adrian Cantemir Călin, 2014. "FDI theories. A location-based approach," Romanian Economic Journal, Department of International Business and Economics from the Academy of Economic Studies Bucharest, vol. 17(53), pages 3-24, September.
    13. Vernon, Raymond, 1979. "The Product Cycle Hypothesis in a New International Environment," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 41(4), pages 255-267, November.
    14. repec:bla:econom:v:38:y:1971:i:149:p:1-27 is not listed on IDEAS
    15. Helpman, Elhanan, 1984. "A Simple Theory of International Trade with Multinational Corporations," Journal of Political Economy, University of Chicago Press, vol. 92(3), pages 451-471, June.
    16. M. Hashem Pesaran & Yongcheol Shin & Richard J. Smith, 2001. "Bounds testing approaches to the analysis of level relationships," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 16(3), pages 289-326.
    17. John H. Dunning, 1977. "Trade, Location of Economic Activity and the MNE: A Search for an Eclectic Approach," Palgrave Macmillan Books, in: Bertil Ohlin & Per-Ove Hesselborn & Per Magnus Wijkman (ed.), The International Allocation of Economic Activity, chapter 12, pages 395-418, Palgrave Macmillan.
    18. Kishor Sharma & Yapa Bandara, 2010. "Trends, Patterns and Determinants of Australian Foreign Direct Investment," Journal of Economic Issues, Taylor & Francis Journals, vol. 44(3), pages 661-676.
    19. Jeannie Yih Yun Yang & Nicolaas Groenewold & Moonjoong Tcha, 2000. "The Determinants of Foreign Direct Investment in Australia," The Economic Record, The Economic Society of Australia, vol. 76(232), pages 45-54, March.
    20. Moshirian, Fariborz, 1998. "International financial services: multinational financial companies in Australia," Journal of Multinational Financial Management, Elsevier, vol. 8(4), pages 365-379, November.
    21. MoonJoong Tcha, 1999. "research notes and comments: A note on Australia's inward and outward direct foreign investment," Papers in Regional Science, Springer;Regional Science Association International, vol. 78(1), pages 89-100.
    22. Leamer, E.E., 1995. "The Heckscher-Ohlin Model in Theory and Practice," Princeton Studies in International Economics 77, International Economics Section, Departement of Economics Princeton University,.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Bitzenis, Aristidis & Tsitouras, Antonis & Vlachos, Vasileios A., 2009. "Decisive FDI obstacles as an explanatory reason for limited FDI inflows in an EMU member state: The case of Greece," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 38(4), pages 691-704, August.
    2. Isabel Faeth, 2009. "Determinants Of Foreign Direct Investment – A Tale Of Nine Theoretical Models," Journal of Economic Surveys, Wiley Blackwell, vol. 23(1), pages 165-196, February.
    3. G. Ietto-Gillies, 1998. "Location of Affiliates and Degree of Internationalisation: An Analysis of the World's Largest 664 TNCs," CIBS Research Papers in International Business 14-98, London South Bank University CIBS.
    4. Siddique Hasinul Hussan & Bardai Barjoyai Bin, 2023. "Seventy Years of FDI Literature: Review, Comparison and Critique," Economics, Sciendo, vol. 11(1), pages 195-221, June.
    5. Pontus Braunerhjelm & Lars Oxelheim, 2000. "Does Foreign Direct Investment Replace Home Country Investment? The Effect of European Integration on the Location of Swedish Investment," Journal of Common Market Studies, Wiley Blackwell, vol. 38(2), pages 199-221, June.
    6. Chupryhin, Radzivon, 2021. "Determinants of Foreign Direct Investment in Europe: Bayesian Model Averaging in the Presence of Weak Exogeneity," MPRA Paper 107197, University Library of Munich, Germany.
    7. Nvuh Njoya Youssouf, 2017. "Robust FDI Determinants in Sub-Saharan African Countries," Applied Economics and Finance, Redfame publishing, vol. 4(5), pages 21-30, September.
    8. Sule Ozler & Erol Taymaz, 2004. "Does foreign ownership matter for survival and growth? Dynamics of competition and foreign direct investment," ERC Working Papers 0406, ERC - Economic Research Center, Middle East Technical University, revised Mar 2004.
    9. Rachel Griffith & Stephen Redding & Helen Simpson, 2004. "Foreign Ownership and Productivity: New Evidence from the Service Sector and the R&D Lab," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 20(3), pages 440-456, Autumn.
    10. Filippov, Sergey, 2008. "Russia's emerging multinationals: trends and issues," MERIT Working Papers 2008-062, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
    11. Terutomo Ozawa & Sergio Castello, 2001. "Toward an 'International Business' Paradigm of Endogenous Growth: Multinationals and Governments as Co-Endogenisers," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 8(2), pages 211-228.
    12. Tamar Almor & Niron Hashai & Seev Hirsch, 2006. "The product cycle revisited: Knowledge intensity and firm internationalization," Management International Review, Springer, vol. 46(5), pages 507-528, September.
    13. Fernando Mistura & Caroline Roulet, 2019. "The determinants of Foreign Direct Investment: Do statutory restrictions matter?," OECD Working Papers on International Investment 2019/01, OECD Publishing.
    14. Dell'Anno, Roberto & Strat, Vasile Alecsandru, 2018. "The potential of the EU economies in attracting FDI – A composite index based approach," MPRA Paper 93384, University Library of Munich, Germany.
    15. Engwall, Lars & Pahlberg, Cecilia & Persson, Olle, 2018. "The development of IB as a scientific field," International Business Review, Elsevier, vol. 27(5), pages 1080-1088.
    16. Villaverde, José & Maza, Adolfo, 2015. "The determinants of inward foreign direct investment: Evidence from the European regions," International Business Review, Elsevier, vol. 24(2), pages 209-223.
    17. 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.
    18. Radovan Kastratović, 2020. "The impact of foreign direct investment on host country exports: A meta‐analysis," The World Economy, Wiley Blackwell, vol. 43(12), pages 3142-3183, December.
    19. María C. Latorre, 2009. "The economic analysis of multinationals and foreign direct investment: a review," Hacienda Pública Española / Review of Public Economics, IEF, vol. 191(4), pages 97-126, December.
    20. Grazia Ietto-Gillies, 2014. "The Theory of the Transnational Corporation at 50+," Economic Thought, World Economics Association, vol. 3(2), pages 1-38, September.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:ausecr:v:55:y:2022:i:1:p:71-90. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: https://edirc.repec.org/data/mimelau.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.