business economics assignment
TRANSCRIPT
-
7/28/2019 Business Economics Assignment
1/34
The Determinants of Foreign Direct Investment into Australia 2013
Page 0
2013
Charlie Lennon
The Determinants of Foreign
Direct Investment into Australia
-
7/28/2019 Business Economics Assignment
2/34
The Determinants of Foreign Direct Investment into Australia 2013
Page 1
Contents
List of Tables .................................................................................................................................... 3
List of Figures .................................................................................................................................. 3Abstract ............................................................................................................................................ 4
Abbreviations Used .......................................................................................................................... 5
1.0 Introduction ................................................................................................................................ 6
1.1 Foreign Direct Investment ....................................................................................................... 6
1.2 Growth of FDI ......................................................................................................................... 6
1.3 Determinants of FDI ................................................................................................................ 6
2.0 Overview of Australia ................................................................................................................. 7
2.1 Australian Economy ................................................................................................................ 7
3.0 Methodology .............................................................................................................................. 8
3.1 Data Collection ....................................................................................................................... 8
3.2 Variable Selection ................................................................................................................... 8
3.2.1 Employment ..................................................................................................................... 8
3.2.2 Labour Cost ..................................................................................................................... 8
3.2.3 Price of Gold .................................................................................................................... 8
3.2.4 Gross Domestic Product (GDP) ....................................................................................... 9
3.2.5 Exchange Rates............................................................................................................... 9
3.2.6 Interest Rates .................................................................................................................. 9
3.2.7 Spending on Education .................................................................................................... 9
3.4 Research Strategy .................................................................................................................. 9
4.0 Results, Findings and Discussion ............................................................................................ 11
4.1 Model 1: LCST, EMPL, GDP & GOLD .................................................................................. 11
4.2 Model 2 ................................................................................................................................. 12
4.3 Model 3 ................................................................................................................................. 13
4.4 Model 4 ................................................................................................................................. 13
4.5 Selecting the Most Appropriate Model .................................................................................. 14
4.3 Limitations ............................................................................................................................ 14
5 Conclusion .................................................................................................................................. 16
-
7/28/2019 Business Economics Assignment
3/34
The Determinants of Foreign Direct Investment into Australia 2013
Page 2
References ..................................................................................................................................... 17
Tables ............................................................................................................................................ 19
Figures ........................................................................................................................................... 21
Appendices .................................................................................................................................... 27
Appendix ATNCs Top 10 perspective host economies 2012-14 ............................................ 27
Appendix B Australia FDI since 1987 ...................................................................................... 27
Appendix C Australia top 10 trading partners .......................................................................... 28
Appendix DAustralias Global Location in Relation to Other Major Economies ...................... 28
Appendix EAustralias Principal Exports ................................................................................. 29
Appendix F - Australian Population since 2003 ......................................................................... 29Appendix G - Australia Gross GDP............................................................................................. 30
Appendix HAustralias Balance of Payments .......................................................................... 30
Appendix I Sample Data .......................................................................................................... 31
Appendix J Research Strategy Model ...................................................................................... 32
Appendix K Definitions of Variables ......................................................................................... 33
-
7/28/2019 Business Economics Assignment
4/34
The Determinants of Foreign Direct Investment into Australia 2013
Page 3
List of Tables
Table 1: Single Regression Results ............................................................................................... 19
Table 2: Model 1 Results ............................................................................................................... 19
Table 3: Model 2 Results ............................................................................................................... 19
Table 4: Model 3 Results ............................................................................................................... 20
Table 5: Model 4 Results ............................................................................................................... 20
Table 6: Comparison of Models ..................................................................................................... 20
List of FiguresFigure 1: Scatterplot of Australia's Employment Rate During 1987-2010 ...................................... 21
Figure 2: Scatterplot of Australias Labour Cost during 1987-2010 ................................................ 21
Figure 3: Scatterplot of the Price of Gold in Australia During 1987-2010 ....................................... 22
Figure 4: Scatterplot of the Australias GDP During 1987-2010 ..................................................... 22
Figure 5: Scatterplot of Australias Exchange Rate During 1987-2010 .......................................... 23
Figure 6: Scatterplot Australias Interest Rate During 1987-2010 .................................................. 23
Figure 7: Scatterplot of the Level of Education Spending in Australia During 1987-2010 .............. 24
Figure 8: Scatterplot of Model 1's Regression Residuals Against Predicted Values ...................... 24
Figure 9: Scatterplot of Model 2's Regression Residuals Against Predicted Values ...................... 25
Figure 10: Scatterplot of Model 3's Regression Residuals Against Predicted Values .................... 25
Figure 11: Scatterplot of Model 4's Regression Residuals Against Predicted Values .................... 26
-
7/28/2019 Business Economics Assignment
5/34
The Determinants of Foreign Direct Investment into Australia 2013
Page 4
Abstract
This report is an empirical study examining the determinants of Australian FDI. Independentvariables such as GDP, employment, labour cost and the price of gold have been used to
investigate the determinants of FDI. Multiple regression analysis was used to analyse and
investigate the relationship between Australias FDI and independent variables. GDP and the price
of gold were found to have a significant impact on FDI.
-
7/28/2019 Business Economics Assignment
6/34
The Determinants of Foreign Direct Investment into Australia 2013
Page 5
Abbreviations Used
GDP = Gross Domestic Product
FDI = Foreign Direct Investment
SPSS = Predictive Analysis Software and Solutions
TNC = Trans National Company
INRST = Interest Rate
LCST = Labour Cost
EMPL = Employment
GOLD = Price of Gold
EDU = Education Spending
EXRT = Exchange Rate
OECD = Organization for Economic Coopertation and Development
IMF = International Monetary Fund
ACB = Australian Central Bank
FIRB = Foreign Investment Review Board
-
7/28/2019 Business Economics Assignment
7/34
The Determinants of Foreign Direct Investment into Australia 2013
Page 6
1.0 Introduction
International investment is crucial to the
economic relations between countries (Yanget al. 2000). This study aims to explore the
independent variables that determine FDI into
Australia.
1.1 Foreign Direct Investment
The OECD defines FDI as:
A category of investment that reflects the
objective of establishing a lasting interest by
a resident enterprise in one economy, in an
enterprise that is resident in an economy
other than that of the direct investor. (OECD
2008)
FDI activity can be demonstrated through
international flows, international trade,
information and migration. Australia receives
high FDI flows in comparison to global
standards (Yang et al. 2000).
With increasing globalisation and the
importance of international trade, FDI
intensifies the interaction between states,
regions and firms (Johnson 2005). Placing
greater need for economies to understand
what variables attract and repel FDI for their
specific economy.
1.2 Growth of FDIFDI has demonstrated colossal growth rates
since the 1980s. Globalisation activity such
as the increased openness of economies and
liberalization of markets has strengthened the
argument for careful analysis in relation to
FDI decisions (Reschenhofer et al. 2012).
During 1960-90, estimates show that the
growth rate of world FDI exceeded that of
world GDP growth by approximately 10%,
creating a dramatic increase in the global
GDP/FDI ratio (UNCTC 1988 cited Yang et al
2000, UNCTAD 1993 cited Yang et al 2000).
Australia has seen a steady positive increasein FDI since 1987 (Appendix B).
1.3 Determinants of FDI
Despite extensive research efforts, there is
little unanimity with regards to variables
determining FDI (Reschenhofer et al, 2011).
Noorbakhsh et al (2001) states foreign
investors are attracted to locations that offer
appropriate combinations of location and
advantage. In addition to location, economic
variables such as market size, interest rates,
taxation, barriers to trade, exchange rate and
trade deficit are commonly attributed to
determinants of FDI (Agiomirgianakis, 2006).
-
7/28/2019 Business Economics Assignment
8/34
The Determinants of Foreign Direct Investment into Australia 2013
Page 7
2.0 Overview of Australia
The Australian Government welcomes
foreign investment. It has helped build
Australias economy and will continue toenhance the wellbeing of Australians by
supporting economic growth and prosperity.
(FIRB 2013).
Australia is the worlds smallest continent and
lies south east of Asia, between the Pacific
and Indian Oceans (Appendix D). Australia is
increasingly attempting to focus their trade
activities with Asia (Appendix C) due to its
location geographically, in particular with
China. Its key strategic relationships,
however, are with the United States (Vaughn
2006).
Australia boasts vast natural resources,
further developed rapidly by foreign
investment, particularly in the form of FDI
(Yang et al. 2000). Natural resources are
Australias top three principal exports inrecent years (Appendix E).
In 2013 the Australian population was
estimated at 22 million and has increased
steadily since 2003 (Appendix F).
2.1 Australian Economy
Latest figures from Trading Economics (2012)
show GDP in Australia to be worth
US$1371.76 billion in 2011 (Appendix G).The GDP value of Australia represents 2.21%
of the world economy. Australias GDP from
1965 until 2011 averaged US$328.1,
reaching an all-time high of US$1371.8 billion
in December 2011 and a record low of 25.4
USD Billion in December 1965 (Trading
Economics 2012). This data combined with
population statistics indicates a growing
economy.
Between 2011 and 2015 it is anticipated that
Australias GDP will grow by 4.81% to 5.09%
year on year. By the end of 2015, Australian
GDP is expected to reach US$1.122 trillion(Economy Watch 2010). In addition to GDP,
Australia boasts healthy global trading
relations with a $21.3 billion surplus and an
export growth reaching 8.9% on a 5 year
trend (Appendix H).
-
7/28/2019 Business Economics Assignment
9/34
The Determinants of Foreign Direct Investment into Australia 2013
Page 8
3.0 Methodology
3.1 Data Collection
Quarterly data for all variables was collectedsince 1987. The data was transformed with
logarithm to allow for more accurate
observations (Appendix I). The data was
obtained from the Australian Central Bank, a
reputable governmental source, to ensure
validity and reliability. All data was formulated
on Excel 2010 and regressions were run
using SPSS20.
3.2 Variable Selection
Labour cost, GDP, exchange rate, interest
rate, employment rate, price of gold and
education spending were identified from
extensive preliminary research suggesting a
possible link to FDI. Single regressions were
run to determine the significance of the
variables in determining FDI independently.
The results of the initial linear regression canbe viewed in Table 1. Four variables
performed well, GDP (GDP), the price of gold
(GOLD), employment (EMPL) and labour cost
(LCST), with strong significant coefficients
ranging from 0.00 to 0.04. Interest rates
(INRST), education spending (EDU) and
exchange rate (EXRT) however, displayed
insignificant coefficients outside of the 0.05%
confidence level and were removed for the
main regression.
3.2.1 Employment
Markusen & Maskus (2002) suggest a
markets size and characteristics, in particular,
a countrys skilled labour endowment to be an
important factor of FDI. A well-educated
labour supply has become increasingly
attractive for TNCs (Pfefferman and
Madarassy 1992). It may be argued that new
technological advances and the shift of FDI
towards more skill intensive industries might
be responsible for the increasing demand for
skilled labour. Faeth (2005b) states however,that a higher unemployment rate encourages
FDI as attracting labour becomes cheaper for
TNC's.
Appendix J shows a positive data trend
analysis for employment over time.
3.2.2 Labour Cost
There is wide debate within the literature
regarding labour cost and FDI. Chingarande(2012) believes that since labour cost is a
cost of production, the higher the labour cost,
the greater the negative impact on FDI. Lucas
(1993) states however, that despite higher
employment costs making production in the
host country less attractive than elsewhere, a
replacement of labour with capital is often
considered an acceptable substitution leaving
FDI unaffected. Alternatively, Faeth (2005b)
takes a contrasting view, finding that higher
wages may represent a higher skill level;
hence, firms might substitute capital for
labour, attracting FDI.
Appendix K displays a positive data trend of
labour cost since 1987.
3.2.3 Price of Gold
Gold mining through resource liberalisation isindeed one of the central environmental and
FDI discussion points around the world (Arol.
2002). By drawing on free market forces in
2001, mining accounted for 95% of Australia's
primary sector FDI and 17% of total FDI
(Faeth, 2005). Approved Chinese FDI during
this period, reached almost $60bn, of which
approximately 87% was in minerals and
resources. This provides strong argument for
-
7/28/2019 Business Economics Assignment
10/34
The Determinants of Foreign Direct Investment into Australia 2013
Page 9
Australias geographical demographics and
resources influencing its FDI.
Australia's richness in minerals thus prompts
an investigation into whether inward FDIwould be affected by the price of specific
minerals, such as gold.
Appendix L conveys the data trend analysis
for the price of gold. The trend is initially
stable, horizontal and linear, extending into a
positive curve.
3.2.4 Gross Domestic Product (GDP)
The majority of empirical studies on FDI
contain a measure of the size of the host
market, most commonly represented by real
GDP (see Bajo-Rubia & Sosvilla-Rivero
(1994); Moore (1993); Wang & Swain (1995)
cited in Yang (2000)). The literature
consistently portrays a strong relationship
between GDP and FDI.
Appendix M demonstrates data trend analysisfor GDP, outlining a continuous positive linear
trend.
3.2.5 Exchange Rates
The literature commonly expresses that
exchange rates influence FDI with both their
levels and their volatility. When a currency
depreciates, becoming relatively cheaper in
terms of another currency, two implications
can be identified. Depreciation can reduce a
countrys wages and production costs relative
to other countries (Goldberg 2009), this will
attract FDI. Secondly, a domestic
depreciation can be an advantage to potential
investors if the exchange rate is expected to
appreciate in the future, improving future
rates of return and consequently FDI.
Appendix N outlines the data trend of
exchange rates since 1987, showing an
upward, positive trend with many fluctuations.
3.2.6 Interest Rates
Fedderke (2002) states that the core drivers
of FDI fall into two categories, rate of return
and risk factors. He found that there is a
positive response of FDI to interest rates by
virtue of a negative response overall to the
risk factors. Whilst According to Gross and
Trevino (1996) a relatively high interest rate
in a host country has a positive impact on
inward FDI.
Appendix O depicts the data trend analysis
performed, outlining a negative trend of
interest rates over time.
3.2.7 Spending on Education
A high level of education is regarded as the
most important element in human resource
development (UNCTAD, 1994). Buckley and
Matthew (1979) found that highly skilled and
educated workers in the manufacturing
industry were the most influential factor in
expansion into Australia as opposed to any
other global economy. Nicholas et al. (1996)
established that investors are attracted to
Australia due to the belief that higher
spending on education develops an
increasingly efficient work force with limited
risk on investment.
Appendix P illustrates the data trend for
education spending over time, portraying a
linear and somewhat cyclical relationship.
3.4 Research Strategy
The results of the initial linear regression can
be viewed in Table 1. Four variables
performed well, GDP (GDP), the price of gold
(GOLD), employment (EMPL) and labour cost
-
7/28/2019 Business Economics Assignment
11/34
The Determinants of Foreign Direct Investment into Australia 2013
Page 10
(LCST), with strong significant coefficients
ranging from 0.00 to 0.04. Interest rates
(INRST), education spending (EDU) and
exchange rate (EXRT) however, displayedinsignificant coefficients outside of the 0.05%
confidence level and were removed for the
main regression.
As outlined in Appendix I, the framework
used to examine the four remaining variables
consisted of four regressions and a process
of elimination. Systematic analysis was
conducted by eliminating the weakest
variable prior to running the next regression.The results are analysed in Chapter 4.
-
7/28/2019 Business Economics Assignment
12/34
The Determinants of Foreign Direct Investment into Australia 2013
Page 11
4.0 Results, Findings and
Discussion
In this chapter, the regression results are
presented, interpreted and analysed.
4.1 Model 1: LCST, EMPL, GDP &
GOLD
The regression equation for model 1 is as
follows:
FDI = -7.988 + GDP1 + GOLD2+ EMPL3+ LCST4
The objective of the regression was to test
whether the null hypothesis should beaccepted or rejected in favour of the
alternative hypothesis. The null hypothesis
(H0) and alternative hypothesis (H1) for model
1 are as follows:
H0: 1= 2= 3= 4 = 0
H1: 1 0, 2 0, 3 0, or 4 0
The results from model 1 are displayed in
Table 2. The coefficient of GDP performed
well. With a P value of 0.004, it is the most
significant coefficient and is substantially
within the preferred economic significance
standard of 0.05 confidence. The t-test
results for the coefficient of GDP show that |t|
is greater than the critical value of t by 4.324
at a 5% significance level, hence, the null
hypothesis is rejected at a 99.6% confidence
level. It is evident therefore, that thecoefficient of GDP is statistically significant in
determining FDI. As the coefficient is a
positive figure, the relationship between FDI
and GDP is also positive, this means as GDP
increases, the level of Australias FDI will rise.
The coefficient of the price of gold shows a
significance of 0.056. Despite the figure
falling short of the preferred standard by
0.006, it remains within the economic
conventions of below 0.01 and is therefore,
classified as significant. Likewise, the t-test at
95% significance proves that the price of gold
is statistically significant in determining FDIas the absolute value of t 4.81, is greater than
the critical value 2.776, allowing the rejection
of the null hypothesis at a 94.4% confidence
level.
On the other hand, both coefficients of
employment (EMPL) and labour cost (LCST)
are insignificant at the significance levels of
0.412 and 0.106 respectively. The t-test
results of both coefficients display similarresults, with both absolute values of t being
less than the critical value at 95%
significance. The result causes the
acceptance of the null hypothesis and
consequently proves that in this particular
model, there is no statistical relationship
between FDI, labour cost and employment.
The results are surprising as the literature
suggests that both variables influence FDI
and therefore, an acceptable significance
level was to be expected. In addition to this,
during our preliminary testing, each variable
showed a significant influence on FDI. The
results show that within the particular
combination of variables tested, despite being
significant when tested independently with
FDI, EMPL and LCST do not have a
significant impact on determining FDI, with
EMPL being the weakest. It is for this reasontherefore, EMPL has been removed from the
regression in Model 2.
The r2 of the model is equal to 0.823,
therefore, Model 1 explains 82.3% of the
variance of the relationship between GDP,
GOLD, EMPL and LCST. In other words,
assuming all coefficients are significant, the
combination of all independent variables used
in this model, is appropriate in predicting FDI.
-
7/28/2019 Business Economics Assignment
13/34
The Determinants of Foreign Direct Investment into Australia 2013
Page 12
The f-test is performed to calculate the
statistical use of the model. The test for
Model 1 is as follows:
f(4,95) = 1794.694, p
-
7/28/2019 Business Economics Assignment
14/34
The Determinants of Foreign Direct Investment into Australia 2013
Page 13
and LCST is explained by the model. This
provides argument that the model is useful in
predicting FDI.
The f-test performed is as follows:
f(3,95) = 2261.663, p
-
7/28/2019 Business Economics Assignment
15/34
The Determinants of Foreign Direct Investment into Australia 2013
Page 14
Y = -9.741 + GDP1
H0: 1 = 0
H1: 1 0
The results from model 4 are summarised in
the table 5. The coefficient of GDP shows a
positively correlated significance of 0.003.
The relationship between GDP and FDI is
further supported by the t-test result whereby
the null hypothesis is rejected at a 99.7%
confidence level because the absolute value
of t (15.249) is greater than the critical value
of t (12.71).
The r2 is moderate at 62.8%, however as this
model only contains one coefficient, it is more
appropriate to analyse the adjusted r2 to take
this into account. The adjusted r2 is high at
79%, supporting the validity of the model and
showing that 79% of the variance is explained
by the model.
The f-test performed is as follows:
f(1,95) = 17756.301, p
-
7/28/2019 Business Economics Assignment
16/34
The Determinants of Foreign Direct Investment into Australia 2013
Page 15
distortions improving the robustness of the
models.
This project was limited by time and
specification. If there were no limits on time orwordcount, there would have been more time
to incorporate more variables with more
detailed analysis.
-
7/28/2019 Business Economics Assignment
17/34
The Determinants of Foreign Direct Investment into Australia 2013
Page 16
5 Conclusion
With an increasingly globalised economy, the
Australian government is focussed on gaining
increasing FDI for their country. The aim ofthis paper was to discover the determinants
of FDI in Australia. Having researched
existing studies, the empirical results in this
paper are generally consistent with the widely
accepted determinants of FDI found within
the literature, such as GDP and labour cost.
The price of gold is also found to be a
significant factor of FDI in this study.
This study found GDP to be the most
significant determinant of FDI in all models.
GDP run independently with FDI was found to
be the most appropriate model. It can be
concluded therefore, that GDP can be used
to predict Australias FDI levels in the future.
The price of gold was also found to be a
significant determinant of FDI in all models.
Both results are consistent with the literature.
Labour cost and employment were found to
be significant only when run independently
with FDI however, the models validity was
questionable due to low r2 values. The
literature states that labour cost and
employment are determinants of FDI hence,
further investigation would be useful to
analyse our contradictory result for LCST &
EMPL.
-
7/28/2019 Business Economics Assignment
18/34
The Determinants of Foreign Direct Investment into Australia 2013
Page 17
References
Agiomirgianakis, A. 2006. The Determinants of Foreign Direct Investment: A Panel Data Study for
the OECD Countries. Department of Economics, City University London. Available:http://www.city.ac.uk/__data/assets/pdf_file/0019/90424/0306_agiomirgianakis-et-al.pdf. Last
accessed 08/03/201
Buckley, P.J. and Matthew, A.M., 1979. The motivation for recent first time foreign direct
investments in Australia by UK firms. Management international review, 19 (1), 57-69.
Chakrabarti, A.,2001. The determinants of foreign direct investment: sensitivity analyses of cross-
country regressions. Kyklos, 54 (1), 89-114.
Claudio Felisoni de Angelo, Rangamohan V. Eunni, Nuno Manoel Martins Dias Fouto, (2010)"Determinants of FDI in emerging markets: evidence from Brazil", International Journal of
Commerce and Management, Vol. 20 Iss: 3, pp.203 - 216Economy Watch. (2010). Australia
Economic Forecast. Available:http://www.economywatch.com/world_economy/australia/economic-
forecast.html. Last accessed 01/03/2013.
Faeth, I., 2005a. Determinants of FDI in Australia: Which theory can determine it best? Melbourne,
Australia: The University of Melbourne.
Faeth, I., 2005b. Foreign Direct Investment in Australia: Determinants and Consequences.
Australia: The University of Melbourne.Faeth, I., 2006. Consequences of FDI in Australia-Causal Links Between FDI, Domestic
Investment, Economic Growth and Trade Melbourne. Australia: The University of Melbourne.
Fexco. (2013). Worldwide Locations. Available: http://www.fexco.com/corporate-information/worldwide-
locations/. Last accessed 13th Mar 2013.
FIRB. (2013). Home. Available: http://www.firb.gov.au/content/default.asp. Last accessed
01/03/2013.
Goldberg, L, (2009) Exchange Rates and Foreign Direct Investment. Kenneth A. Reinert andRamkishen S. Rajan, eds. The Princeton Encyclopedia of the World Economy. Princeton, N.J. PrincetonUniversity Press.
IMF. (2000). International Financial Statistics Yearbook. Washington D.C. Introduction. page 17.
Johnson, A. (2005). Host Country Effects of Foreign Direct Investment: The Case of Developing and
Transition Economies. Jibs Dissertation Series. 31, 194.
Lucas, R. B., 1993. On the Determinants of Foreign Direct Investment Evidence from East and
Southeast Asia, World Development 21, 391406.
-
7/28/2019 Business Economics Assignment
19/34
The Determinants of Foreign Direct Investment into Australia 2013
Page 18
Markusen, J.R. and Maskus, K.E., 2002. Discriminating among Alternative Theories of the
Multinational Enterprise, Review of International Economics 10, 694-707.
Noorbakhsh, F., Paloni,A. and Youseff, A., 2001. Human Capital and FDI Inflows to Developing Countries:
New Empirical Evidence. World Development, 29 (9), 1593-1610.
OECD. (2008). Glossary of Foreign Direct Investment Terms and Definitions. Available:
http://www.oecd.org/daf/inv/investmentfordevelopment/2487495.pdf. Last accessed 21st Feb 2013.
OECD. (2003). Current Expenditure (On Education). Available:
http://stats.oecd.org/glossary/detail.asp?ID=5570. Last accessed 06/03/2013.
OECD. (2002). Employment - ILO. Available: http://stats.oecd.org/glossary/detail.asp?ID=778. Last
accessed 06/03/2013.
OECD. (2001). Gross Domestic Product. Available: http://stats.oecd.org/glossary/detail.asp?ID=1163. Lastaccessed 06/03/2013.
OECD. (2003). Labour Cost - ILO. Available: http://stats.oecd.org/glossary/detail.asp?ID=1484. Last
accessed 06/03/2013.
OECD. (2001). Real Effective Exchange Rates. Available:
http://stats.oecd.org/glossary/detail.asp?ID=2243. Last accessed 06/03/2013.
OECD. (2001). Spot Price. Available: http://stats.oecd.org/glossary/detail.asp?ID=2523. Last accessed
06/03/2013.
Prime, P., Subrahmanyam, V., & Lin, C. (2012). Competitiveness in India and China: The FDI puzzle. Asia
Pacific Business Review, 18(3), 303-333. doi:10.1080/13602381.2011.605673
Reschenhofer, E; Schilde, M; Oberecker, E; Payr, E; Tandogan, H; Wakolbinger, L;. (2012). Identifying
the determinants of foreign direct investment: a data-specific model selection approach. Stat.
Papers. 53 (1), 739-752.
Trading Economics. (2012). Australia GDP per capita PPP.
Available:http://www.tradingeconomics.com/australia/gdp-per-capita-ppp. Last accessed
01/03/2013.
UNCTAD, 1994. World Investment Report. Geneva: UNCTAD.
Vaughn, B (2006). Australia: Background and US Relations. Library of Congress Washington DC
Congressional Research Service. p.1-19
Yang, J; Groenewold, N; Tcha, M;. (2000). The Determinants of Foreign Direct Investment in
Australia. The Economic Record. 76 (232), 45-54.
-
7/28/2019 Business Economics Assignment
20/34
The Determinants of Foreign Direct Investment into Australia 2013
Page 19
Tables
Table 1: Single Regression Results
Variable R Square Adjusted R Square t Sig
GDP(1) 0.628 0.790 1.589 15.249 0.03
GOLD(2) 0.558 0.528 2.193 6.242 0.00
EMPL(3) 0.520 0.255 0.589 3.669 0.04
LCST(4) 0.498 0.344 -0.875 5.275 0.01
INRST(5) 0.429 0.378 -5.675 -7.434 0.70
EDU(6) 0.203 0.195 0.438 4.995 0.50
EXRT(7) 0.155 0.045 0.597 2.391 0.84
Table 2: Model 1 Results
Variable R SquareAdjustedR Square
F t Sig
ModelSummary
GDP (1),GOLD(2),EMPL(3),LCST(4)
0.823 0.812 1794.694
1 GDP 2.017 7.100 0.004
2 GOLD 0.587 4.810 0.056
3 EMPL 0.300 0.824 0.412
4 LCST -0.870 -0.59 0.106
Table 3: Model 2 Results
Variable R Square AdjustedR Square F T Sig
ModelSummay
GDP(1),GOLD(2),LCST(3)
0.778 0.762 2261.663
1 GDP 2.154 9.377 0.004
2 GOLD 0.601 3.989 0.010
3 LCST -0.074 -2.983 0.066
-
7/28/2019 Business Economics Assignment
21/34
The Determinants of Foreign Direct Investment into Australia 2013
Page 20
Table 4: Model 3 Results
Variable R SquareAdjustedR Square
F T Sig
ModelSummary
GDP(1),GOLD(2)
0.674 0.659 3426.272
1 GDP 2.402 9.377 0.000
2 GOLD 0.601 4.518 0.010
Table 5: Model 4 Results
Variable R Square AdjustedR Square
F T Sig
1 GDP 0.628 0.790 17756.301 1.589 15.249 0.003
Table 6: Comparison of Models
ModelSignificant
Coefficients
(p
-
7/28/2019 Business Economics Assignment
22/34
The Determinants of Foreign Direct Investment into Australia 2013
Page 21
Figures
Figure 1: Scatterplot of Australia's Employment Rate During 1987-2010
Figure 2: Scatterplot of Australias Labour Cost during 1987-2010
6000
6500
7000
7500
8000
8500
9000
9500
10000
10500
11000
11500
12000
Q1-1987
Q2-1988
Q3-1989
Q4-1990
Q1-1992
Q2-1993
Q3-1994
Q4-1995
Q1-1997
Q2-1998
Q3-1999
Q4-2000
Q1-2002
Q2-2003
Q3-2004
Q4-2005
Q1-2007
Q2-2008
Q3-2009
Q4-2010
Employment - '000
Employment
MA4
MA8
400.0
500.0
600.0
700.0
800.0
900.0
1000.0
1100.0
1200.0
1300.0
1400.0
Mar-1987
Mar-1988
Mar-1989
Mar-1990
Mar-1991
Mar-1992
Mar-1993
Mar-1994
Mar-1995
Mar-1996
Mar-1997
Mar-1998
Mar-1999
Mar-2000
Mar-2001
Mar-2002
Mar-2003
Mar-2004
Mar-2005
Mar-2006
Mar-2007
Mar-2008
Mar-2009
Mar-2010
Mar-2011
Labour Cost $000
FDIMA4
MA8
-
7/28/2019 Business Economics Assignment
23/34
The Determinants of Foreign Direct Investment into Australia 2013
Page 22
Figure 3: Scatterplot of the Price of Gold in Australia During 1987-2010
Figure 4: Scatterplot of the Australias GDP During 1987-2010
150000
200000
250000
300000
350000
400000
Mar-1987
Jun-1988
Sep-1989
Dec-1990
Mar-1992
Jun-1993
Sep-1994
Dec-1995
Mar-1997
Jun-1998
Sep-1999
Dec-2000
Mar-2002
Jun-2003
Sep-2004
Dec-2005
Mar-2007
Jun-2008
Sep-2009
Dec-2010
GDP $000
GDP
MA4MA8
0.00
200.00
400.00
600.00
800.00
1000.00
1200.00
1400.00
1600.00
1800.00
Q1-1987
Q1-1988
Q1-1989
Q1-1990
Q1-1991
Q1-1992
Q1-1993
Q1-1994
Q1-1995
Q1-1996
Q1-1997
Q1-1998
Q1-1999
Q1-2000
Q1-2001
Q1-2002
Q1-2003
Q1-2004
Q1-2005
Q1-2006
Q1-2007
Q1-2008
Q1-2009
Q1-2010
Q1-2011
Gold ($/Oz)
Gold ($)
MA4
MA8
-
7/28/2019 Business Economics Assignment
24/34
The Determinants of Foreign Direct Investment into Australia 2013
Page 23
2.00
4.00
6.00
8.00
10.00
12.00
14.00
16.00
18.00
20.00
Q1-1987
Q1-1988
Q1-1989
Q1-1990
Q1-1991
Q1-1992
Q1-1993
Q1-1994
Q1-1995
Q1-1996
Q1-1997
Q1-1998
Q1-1999
Q1-2000
Q1-2001
Q1-2002
Q1-2003
Q1-2004
Q1-2005
Q1-2006
Q1-2007
Q1-2008
Q1-2009
Q1-2010
Q1-2011
Interest Rate (%)
Interest Rate
MA4
MA8
Figure 5: Scatterplot of Australias Exchange Rate During 1987-2010
Figure 6: Scatterplot Australias Interest Rate During 1987-2010
0.4500
0.5500
0.6500
0.7500
0.8500
0.9500
1.0500
1.1500
Q1-1987
Q2-1988
Q3-1989
Q4-1990
Q1-1992
Q2-1993
Q3-1994
Q4-1995
Q1-1997
Q2-1998
Q3-1999
Q4-2000
Q1-2002
Q2-2003
Q3-2004
Q4-2005
Q1-2007
Q2-2008
Q3-2009
Q4-2010
Exchange Rate($)
Exchange Rate ($)
MA4
MA8
-
7/28/2019 Business Economics Assignment
25/34
The Determinants of Foreign Direct Investment into Australia 2013
Page 24
Figure 7: Scatterplot of the Level of Education Spending in Australia During 1987-2010
Figure 8: Scatterplot of Model 1's Regression Residuals Against Predicted Values
-2000
-1000
0
1000
2000
3000
4000
5000
6000
7000
8000
Q1-1987
Q1-1988
Q1-1989
Q1-1990
Q1-1991
Q1-1992
Q1-1993
Q1-1994
Q1-1995
Q1-1996
Q1-1997
Q1-1998
Q1-1999
Q1-2000
Q1-2001
Q1-2002
Q1-2003
Q1-2004
Q1-2005
Q1-2006
Q1-2007
Q1-2008
Q1-2009
Q1-2010
Q1-2011
Education Spending ($000)
Education
MA4
MA8
-
7/28/2019 Business Economics Assignment
26/34
The Determinants of Foreign Direct Investment into Australia 2013
Page 25
Figure 9: Scatterplot of Model 2's Regression Residuals Against Predicted Values
Figure 10: Scatterplot of Model 3's Regression Residuals Against Predicted Values
-
7/28/2019 Business Economics Assignment
27/34
The Determinants of Foreign Direct Investment into Australia 2013
Page 26
Figure 11: Scatterplot of Model 4's Regression Residuals Against Predicted Values
-
7/28/2019 Business Economics Assignment
28/34
The Determinants of Foreign Direct Investment into Australia 2013
Page 27
Appendices
Appendix ATNCs Top 10 perspective host economies 2012-14
Adapted from UNCTAD, world investment report 2012
Appendix B Australia FDI since 1987
Source: Reserve Bank of Australia (2012)
0.0
100.0
200.0300.0
400.0
500.0
600.0
700.0
800.0
900.0
1000.0
Mar-1987
Jun-1988
Sep-1989
Dec-1990
Mar-1992
Jun-1993
Sep-1994
Dec-1995
Mar-1997
Jun-1998
Sep-1999
Dec-2000
Mar-2002
Jun-2003
Sep-2004
Dec-2005
Mar-2007
Jun-2008
Sep-2009
Dec-2010
FDI - Australia
FDI
MA4
MA8
-
7/28/2019 Business Economics Assignment
29/34
The Determinants of Foreign Direct Investment into Australia 2013
Page 28
Appendix C Australia top 10 trading partners
Appendix DAustralias Global Location in Relation to Other Major Economies
-
7/28/2019 Business Economics Assignment
30/34
The Determinants of Foreign Direct Investment into Australia 2013
Page 29
Appendix EAustralias Principal Exports
Appendix F - Australian Population since 2003
-
7/28/2019 Business Economics Assignment
31/34
The Determinants of Foreign Direct Investment into Australia 2013
Page 30
Appendix G - Australia Gross GDP
Adapted from: Trading Economics (2012)
Appendix H Australias Balance of Payments
-
7/28/2019 Business Economics Assignment
32/34
The Determinants of Foreign Direct Investment into Australia 2013
Page 31
Appendix I Sample Data
-
7/28/2019 Business Economics Assignment
33/34
The Determinants of Foreign Direct Investment into Australia 2013
Page 32
Appendix J Research Strategy Model
Model 1 - Multiple
regression with four mostsignificant variables.Weakest variable getsdropped for Model 2.
Model 2 - Multiple
regression with three mostsignificant variables.Weakest variable getsdropped for Model 3.
Model 3 - Multipleregression with two most
significant variabes.Weakest variable gets
rejected for model 4.
Model 4 - Single mostsignificant variable
Analyse models 1,2,3,4 toasses which model best
determines FDI intoAustralia.
-
7/28/2019 Business Economics Assignment
34/34
The Determinants of Foreign Direct Investment into Australia 2013
Appendix K Definitions of Variables
Variable Definition
Employment "Persons in employment comprise all persons above a specified age whoduring a specified brief period, either one week or one day, were in thefollowing categories: - paid employment and self employment." (OECD2002)
Cost of Labour "For the purpose of labour cost statistics, labour cost is the cost incurred bythe employer in the employment of labour.
Labour costs are based on the concept of labour as a cost to an employerrather than from the perspective of earnings to an employee. The concept
of labour cost is broader than compensation of employees as it includesexpenditure on welfare services, recruitment and training and othermiscellaneous costs including work clothes and taxes on employment "
(OECD 2002)
Spot Price of Gold "A spot price in the selling price of a commodity (Gold, oil etc.) forimmediate value rather than forward delivery." (OECD 2001)
Gross Domestic
Product (GDP)
"Gross domestic product is an aggregate measure of production equal to
the sum of the gross values added of all resident institutional units engagedin production (plus any taxes, and minus any subsidies, on products notincluded in the value of their outputs). The sum of the final uses of goodsand services (all uses except intermediate consumption) measured inpurchasers' prices, less the value of imports of goods and services, or thesum of primary incomes distributed by resident producer units." (OECD2001)
Exchange Rates "Exchange rates take account of price level differences between tradingpartners. Movements in real effective exchange rates provide an indicationof the evolution of a countrys aggregate external price competitiveness."
(OECD 2001)
Interest Rates orBank Rate
"Interest is payment for the use of borrowed money. The discount interestrate is the rate at which central banks lend or discount eligible paper fordeposit money banks. Also known as the bank rate." (IMF 2000)
Spending onEducation
"Expenditure on goods and services consumed within the current period,which needs to be made recurrently to sustain the production of educationalservices. Minor expenditure on items of equipment, below a certain cost
threshold, is also reported as current spending. " (OECD 2003)