Trends, Patterns and Determinants of Australian Foreign Direct Investment

The aim of this paper is to present an empirical evidence of the determinants of Australian foreign direct investment using hypotheses drawn from an investment demand model, new trade theory and institutional economics. The findings suggest that countries which are open, have a large domestic market, and have a similar language and culture to Australia's attract most of its foreign investment. There is also evidence to suggest that countries in regional blocs such as NAFTA and EEC tend to attract Australian investment, possibly opening up opportunities for investors to capture a large regional market. Although difficult to prove statistically, the findings also suggest that countries that are economically more stable and have strong institutional crediability tend to attract Australian investment.