Foreign Direct Investment and Australia

Australia, being an advanced economy, benefits quite significantly from globalisation because of increasing numbers of export markets and increased international competition reducing the cost of imports, as in the car industry where tariffs are now aimed at 10 per cent (to be reduced slowly so as not to flood the domestic market and cause mass redundancies). Whilst increased trade liberalisation and the accompanying tariff reforms have indeed allowed Australia's exports to grow, the reverse has also occurred.

With imports becoming more accessible and Australia's import restrictions falling, Australia's current account deficit has increased quite significantly whilst gross domestic product grew more slowly. With the GDP reaching $87531 billion seasonally adjusted and the CAD reaching $-724 billion in the June Quarter in 1980 when the Australian economy seriously undertook means to engage in trade liberalisation, the gap between the two was significantly less than their counterparts in the June Quarter of 2003 when the CAD swelled to $-12686 billion and the GDP grew to $183 578 billion sa5 reaching 6 per cent of the GDP6.

It is evident that although globalisation has certainly benefited Australia's GDP, the CAD has expanded to levels much higher than those prior to the increase in international transactions, although Australia's CAD does not pose an imminent threat and is, in relation to many other major economies, in quite a favourable position. Because of the nature of Australia's CAD, with the majority of the international 4.

borrowing attributed to the private sector (comprising around 92 per cent of net foreign debt whilst the public sector forms only about 8 per cent)7 rather than the government, it is clear that globalisation has helped to increase Australia's economic activity, with the growing, but not dangerously high CAD merely an indicator of this increased progress, allowing exports to increase by an average of 8. 5 per cent over the past ten years8.

The level of increased trade has also contributed directly to foreign investment within Australia, expanding both the infrastructure and the workforce of the economy. Foreign Direct Investment in the economy can certainly raise the level of GDP and create more job openings, stimulating economic activity. Nonetheless, FDI poses an inherent threat to the economy, with business profits returning overseas, usually to the mother corporation and not being reinvested within Australia.

Therefore, although foreign investment within Australia does help to stimulate growth and increase production, the profits derived from these enterprises are often sent overseas, depriving Australia of remuneration for the use of land, labour and capital: the economy's productive resources. Globalisation has undeniably improved efficiency and market access throughout the world. Trade liberalisation and the consequent reduction of tariffs have seen competition rise and domestic prices fall.

Yet the removal or reduction of tariffs does have significant political and social implications for domestic economies, with short-term 'restructuring' or job losses overriding ideals of long-term productivity and improved efficiency. Also, because of the inherent nature of tariffs, which are designed to protect domestic industry, nations are tentative in undertaking significant reforms, for such actions will expose inefficient industry to competition and quite possibly result in internal redundancies.

Whilst globalisation in its purest form represents the ideal of free trade globally – in a perfectly competitive market economy – national and political interest will continue to subvert the process of trade liberalisation, with established economies predominantly benefiting from the current trend and developing nations struggling to meet such high levels of output in an equitable and efficient manner.