Australians on average were likely to be at least $1400 richer in 1996-97 thanks to foreign investment over the past decade, according to a University of Queensland study.
Economics Department senior lecturer Dr Tony Makin used Australian Bureau of Statistics data to quantify the value of foreign investment in the 1980s to the Australian economy.
He found that the gain in national income for the period due to foreign investment was $18 billion a year or five percent of Gross Domestic Product (GDP). Using most recent figures, Dr Makin said this gain translated as a theoretical $1400 for every Australian.
'Foreign investment in Australia has generated more income than it has cost us and should therefore be welcomed, not restricted,' Dr Makin said.
Dr Makin was a senior economist in the Federal departments of Finance, Foreign Affairs and Trade, the Treasury, Prime Minister and Cabinet in the late 1980s.
Published in a recent edition of the European journal, International Review of Economics and Business, the study is one of the first to take a macroeconomic perspective on foreign investment - its effect on the overall economy rather than on individual companies or industries.
To work out the gain, Dr Makin compared the productivity of foreign capital - the output from the use of the capital - with the cost of the capital (for example, interest on foreign debt payments).
'Foreign investment takes many forms: direct, such as when an overseas company sets up business in Australia, takes over an existing one or when foreigners buy Australian real estate; indirect, such as loans by Australian businesses from overseas banks and companies; or official, in the form of bond purchases between governments,' he said.
Dr Makin said the study provided a strong argument against government restriction on foreign investment.
'The Australian Government, through the operations of the Foreign Investment Review Board, continues to discourage certain forms of foreign investment, particularly in the financial, media, real estate and transport sectors of the economy,' Dr Makin said.
'Foreign investment has also been a driving force for growth in South East Asian economies over the past few decades and recent events have shown what a loss a sudden withdrawal of foreign investment can cause, not only in terms of future growth prospects, but also immediately in terms of sharp fluctuations in exchange rates and share prices.
'Nonetheless, there is a widespread view domestically that Australia's foreign investment policy is not restrictive enough, particularly as it relates to foreign takeovers of Australian enterprises.
'The general lesson from this study is that without foreign investment, domestic capital accumulation is constrained by the size of domestic saving. With foreign investment however, capital accumulation can be much greater and foreign financed capital accumulation can further increase national output and income.'
Dr Makin has written on investment and savings as part of his representation of Australia on the Pacific Economic Co-operation Council (PECC) over the past two years.
PECC, the precursor to the Australian Pacific Economic Community (APEC), is a unique partnership of business, government and academic representatives from 22 Asia-Pacific economies who work on practical government and business policy issues to increase trade, investment and economic development in the region.
For more information, contact Dr Makin (telephone 07 3365 6560).
