Essay on Important Impact of Fdi on Australian Economy

2047 Words May 4th, 2013 9 Pages
Important impact of FDI on Australian economy

Jes Hongs

Abstract

Australia has traditionally relied on inward FDI to meet the shortfall between domestic saving and the level of domestic investment. Inward FDI also continues to play a significant role in making Australian industry internationally competitive, and thereby contributing to export growth. Over the past 15 years Australian outward FDI stocks have grown more strongly than inward FDI stocks. Outward FDI enables Australian firms to expand their business beyond the potential constraints imposed by the limited size of the domestic market. To support increasing investment by Australians at home and abroad, Australia will need higher levels of foreign investment in the future.
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The ratio of FDI to GDP is almost 36 per cent which is well above the average for comparable developed economies of 25 per cent (IMF/UNCTAD/AUSTRADE).
As of 30 July 2010, the stock of inward FDI in Australia was A$ 436 billion. The top four source countries were the United States, the United Kingdom, Japan and the Netherlands.
Out of the top 10 source countries, Singapore, Japan, Germany and the Netherlands have shown the strongest growth in FDI stock into Australia over the last five years.
The European Union remains Australia’s largest regional bloc source of FDI, accounting for close to 34 per cent of total FDI stock in 2009.

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Figure 1: Major market’s FDI in Australia

1. Trend in inwards FDI

Since the late 1980s, inwards FDI flows as a share of GDP have returned to levels that are comparable to those of the 1960s (see Chart 1). As such, they are significantly higher than they were in either the 1970s or the first half of the 1980s. By 2007-08, inwards FDI had reached a 50-year high of nearly 3.7 per cent of GDP and accounted for a total inflow of $34.8 billion in that financial year.

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Figure 2: Inwards FDI, by financial year, as a share of GDP

Inwards FDI is highly volatile. Depending on the financial years one chooses, inwards FDI can be argued as having grown rapidly from a low of 0.6 per cent of GDP in 1982-83 to the recent high of 3.7

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