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Background Paper: Benefits of Foreign Investment to the Australian Economy

As a large country with a relatively small population, Australia has traditionally depended on foreign investment to supplement domestic savings.

This capital has helped Australia become the world's 12th largest economy, with 23 years of uninterrupted growth. International capital has enabled Australians to enjoy higher rates of economic growth, employment and standards of living than could have been achieved with domestic capital alone.

Since the 1960s, foreign investment from the US, the UK, Japan and elsewhere has provided the capital necessary to take maximum advantage of Australia's mineral resources, which is now Australia's largest export industry. China is Australia's sixth-largest source of inward foreign direct investment ($20.8 billion in 2013) and our eighth-largest overall investor ($31.9 billion).

Foreign investment helps Australia reach its economic potential by providing additional capital to finance new industries and enhance existing industries, boosting infrastructure, productivity, and employment opportunities in the process.

Foreign investment creates jobs – more than one in five businesses in Australia with 200 or more employees have greater than 50 per cent foreign ownership. Foreign investment stimulates economic activity – research has found that a 10 per cent increase in foreign investment in Australia could lead to a more than one per cent increase in GDP by 2020.1

By exposing local businesses to international standards and best practices, foreign investment encourages competition and innovation and drives productivity growth. By bringing in new businesses with connections in different markets, it opens up additional export opportunities, boosting our overall export performance.

Australia's world-class R&D organisations have a strong tradition of partnering with foreign investors to develop innovative solutions for global industry.

Foreign investment helps connect Australian businesses to global value chains (GVCs). A recent United Nations Conference on Trade and Development (UNCTAD) report found that countries with high foreign direct investment stocks relative to the size of their economies tended to have a greater participation in GVCs.

Put simply, without foreign investment, Australia's productive capacity, employment levels and income would all be significantly lower.

1 Deloitte Access Economics (2010), commissioned by Business Council of Australia

Last Updated: 20 November 2014
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