Business Economics Assignment

7/28/2019 Business Economics Assignment

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The Determinants of Foreign Direct Investment into Australia 2013

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2013

Charlie Lennon

The Determinants of Foreign

Direct Investment into Australia


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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


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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


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List of Tables

Table 1: Single Regression Results ............................................................................................... 19

Table 2: Model 1 Results ............................................................................................................... 19




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


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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.


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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


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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).


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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).


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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


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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


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(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.


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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.


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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


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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


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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


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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.


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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.


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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-

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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

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Faeth, I., 2005a. Determinants of FDI in Australia: Which theory can determine it best? Melbourne,

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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


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


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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


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


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Figures

Figure 1: Scatterplot of Australia's Employment Rate During 1987-2010

Figure 2: Scatterplot of Australias Labour Cost during 1987-2010

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Figure 3: Scatterplot of the Price of Gold in Australia During 1987-2010

Figure 4: Scatterplot of the Australias GDP During 1987-2010

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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


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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


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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


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Page 25




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Page 26



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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


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Page 28

Appendix C Australia top 10 trading partners

Appendix DAustralias Global Location in Relation to Other Major Economies


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Page 29

Appendix EAustralias Principal Exports

Appendix F - Australian Population since 2003


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Page 30

Appendix G - Australia Gross GDP

Adapted from: Trading Economics (2012)

Appendix H Australias Balance of Payments


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Page 31

Appendix I Sample Data


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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.


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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)

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