Estimating the Impact of Foreign Direct Investment ( FDI ) Policies on FDI Inflows Into Australia

ABSTRACT To what extent FDI policy settings and changes influence FDI inflows is an empirical question for which global answers are scarce. Australia is a pertinent locale to test this question, having a long history of attracting FDI and a policy approach distinct from most developed countries. This paper offers new evidence by constructing and then deploying quantitative policy indicators that track iterative policy changes since 1945. It provides estimates of policy impact on flows that capture more granular reforms within a historical context, including for harder‐to‐quantify regulatory policies like investment screening. A modest tightening of FDI policies—overall and for individual policy subcategories—is found to reduce inflows by around 2%–3% after 15 years. This includes pre‐approval screening of investment, for which the impacts under Australia's foreign investment framework have long been debated. The paper offers a replicable methodology for quantifying and analysing historical policies and contributes findings that further nuance understanding of FDI policy impacts.