Foreign Investment - Economics

Foreign Investment

Inflow of money from overseas investors (Borrowing or equity)

5 forms

5 Forms of foreign investment

Direct investment

Portfolio investment

Other

Financial derivatives (Currency Swap)

Reserve bank (Gold, SDR)

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Foreign liabilities

When Aus residents borrow money from overseas or sell assets to overseas

Foreign assets

Aus residents lend money to foreign residents or purchase foreign assets

Foreign debt

Level of borrowing from overseas residents

Foreign equity

Level of foreign ownership of domestic assets

Foreign debt trends

risen from 51% of GDP in 2008 to 54% of GDP in 2020

69% of debt held by private

Public increases to 31% due to COVID

FDI trends

FDI long term and stable because of degree of ownership

makes 1/4 of total stock of FI into Aus

Mining 37% of FDI

USA, UK, Japan 3 main sources of FDI in Aus

Benefits of Foreign debt

when used for investment living standards rise

most FD held by private sector whose motive is profit rather than public sector

Debt as % of GDP has stabilised making it easier to sustain in terms of repayments

Debt servicing ration fallen meaning less repayments

Cost of Foreign debt

Credit rating downgraded thus Aus subject to higher interest

If TOT deteriorates then export income decreases thus burden of debt increases

Borrowing not used productively then nation wealth deteriorates over time

Benefits of FDI

Helps close S-I gap

Enables Aus to have higher real income and better living standards

Increases tax revenue

New tech and management transfer

Cost of FDI

Dividend payments and debt servicing can adversely affect BOP

Dom industry employment rationalisation

Bad behaviour of MNCs