Foreign direct investment drives global economy

Analysis by Peter Roberts

Australia has always relied on foreign direct investment to drive its growing economy, as do other nations according to today’s graphic from Visual Capitalist.

Whether it is Chevron’s investment in Australia’s north-west shelf, or Incitec Pivot’s $1 billion ammonia plant in New Orleans, companies often find the best payback in foreign markets.

In 2017, total foreign direct investment was US $1.43 trillion (Aud$2 trillion) globally, according to HowMuch.net.

The United States attracted the biggest share with US275.4 billion, twice that of second place China’s US$136.3 billion.

However the picture changes when third-placed Hong Kong’s US$104.3 billion is included.

In 2017 Australia attracted a creditable US$46.4 (Aud$65 billion) in foreign investment.

Interestingly this performance, putting Australia eighth in the world, came after the mining boom had faded, with infrastructure likely a major factor.

Overall developed countries attracted more foreign investment than developing nations, confirming the fact that low wages are only a small part of what makes for a successful economy.

The skills and infrastructure, plus the size of consumer markets in developed countries, is a powerful attractant – something Australia’s policymakers with their low-cost obsession would be well advised to note.

Also notable are big FDI inflows Tax havens such as the British Virgin Islands and the Cayman Islands which rank higher than developed economies like Canada, United Kingdom, and Japan.

This demonstrates the economic losses to taxation revenues of investment in tax havens – again another lesson for policy makers.

2017 FDI Inflows

#1 United States $275.4 billion
#2 China $136.3 billion
#3 Hong Kong (SAR) $104.3 billion
#4 Brazil $62.7 billion
#5 Singapore $62.0 billion
#6 Netherlands $58.0 billion
#7 France $49.8 billion
#8 Australia $46.4 billion
#9 Switzerland $41.0 billion
#10 India $39.9 billion
#11 British Virgin Islands $38.4 billion
#12 Cayman Islands $37.4 billion
#13 Germany $34.7 billion
#14 Mexico $29.7 billion
#15 Ireland $29.0 billion

Graphic: Visual Capitalist

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