Consequences of FDI in Australia-Casual Links Between FDI, Domestic Investment, Economic Growth and Trade

In this paper the consequences of FDI inflows in Australia, the second largest netimporter of FDI in the developed world, are analysed using quarterly aggregate data forQ3/1985 to Q2/2002. The dynamic relationship between Australia’s aggregate quarterly FDIinflows and a set of endogenous variables including GDP, domestic investment, imports andexports was explored by estimating a multivariate vector error correction model. Grangercausalitytests and impulse response analysis were applied. FDI was found to directly increasedomestic investment growth, GDP growth and FDI itself, but decrease export growth.Furthermore, through its impact on GDP growth, FDI also leads to an increase in importgrowth