Important Impact of Fdi on Australian Economy

Topics: Investment, Macroeconomics, Economics Pages: 8 (2041 words) Published: April 28, 2013
Important impact of FDI on Australian economy

Jes Hongs


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. In order to achieve this focus tariff protection in Australia should continue to be lowered. Investment policies should not have aberration from this direction.

Key words: FDI, GDP. Inward, Outward, Policy

1. Introduction

Foreign investment is an important economic process during which foreign state and private companies and enterprises invest capital, technology and innovations into the companies of another country. As usual, the capital flows from developed countries to developing countries. Modern world economy cannot develop successfully without foreign investment. A great number of countries invest their funds to the economy of other countries having a certain income and developing certain branches of industry of such countries.

The sums of money invested in a company are usually quite big and they make a great influence on the economic system of a particular country. As a rule, the investment covers the expertise before the start of building, technology development, and management.

1. Significance of Foreign Direct investment (FDI)

Foreign direct investment (FDI) plays an extraordinary and growing role in global business. It can provide a firm with new markets and marketing channels, cheaper production facilities, access to new technology, products, skills and financing. For a host country or the foreign firm which receives the investment, it can provide a source of new technologies, capital, processes, products, organizational technologies and management skills, and as such can provide a strong impetus to economic development. Foreign direct investment, in its classic definition, is defined as a company from one country making a physical investment into building a factory in another country.

In recent years, given rapid growth and change in global investment patterns, the definition has been broadened to include the acquisition of a lasting management interest in a company or enterprise outside the investing firm’s home country. As such, it may take many forms, such as a direct acquisition of a foreign firm, construction of a facility, or investment in a joint venture or strategic alliance with a local firm with attendant input of technology, licensing of intellectual property, In the past decade, FDI has come to play a major role in the internationalization of business. Reacting to changes in technology, growing liberalization of the national regulatory framework governing investment in enterprises, and changes in capital markets profound changes have occurred in the size, scope and methods of FDI. New information technology systems, decline in global communication costs have made management of foreign investments far easier than in the past. The sea change in trade and investment policies and the regulatory environment globally in the past decade, including trade policy and tariff liberalization, easing of restrictions on foreign investment and acquisition in many nations, and the deregulation and privatization of many industries, has probably been the most significant catalyst for FDI’s expanded role.

For small and medium sized companies, FDI represents an opportunity to become more actively involved in international...
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