How trade and foreign investment affect the growth of a small but not so open economy: Australia?

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Abstract:

This article analyses the impact of trade and foreign investment on a small but not so open economy, Australia, whose growth rate outpaced the majority of the OECD countries in the last decade. We model five channels of outward orientation: exports, imports, foreign direct investment, foreign portfolio investment and other foreign investment. A cointegrated vector autoregressive model, complemented by a robust Granger noncausality test, is specified to identify permanent channels of outward orientation. Imports and direct investment are found to have a growth effect in the long run. The effect of imports is almost three times that of direct investment.

Document Type: Research Article

DOI: http://dx.doi.org/10.1080/00036840601032177

Affiliations: 1: Department of Applied and International Economics, Massey University, New Zealand 2: School of Economics, University of Queensland, St Lucia QLD 4072, Australia

Publication date: May 1, 2009

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