Book Description

There was a significant increase in inward foreign direct investment (FDI) in Australia since the liberalisation of the economy in the mid 1980s. The United States (US) continues to be the single most important source of FDI. Despite the increase in FDI, studies examining the determinants of US FDI in Australia are sparse. Previous studies suffer from several problems, such as: changes in the macroeconomic climate, an absence of a robust analytical framework, the use of inappropriate proxy variables, and the use of only survey based data, focusing on the impacts of US direct investment, but not its determinants. Econometric results suggest that the rapid increase in US FDI in Australia is primarily due to increasingly outwardly orientated trade policy, a stable macroeconomic climate, a small but highly valued domestic market, a favorable real effective exchange rate and the previous impact of other foreign investment in the form of a quasi-public good. Policy recommendations are made which would encourage ongoing FDI in Australia.