Foreign Liabilities Definition
The extent to which overseas investors have a claim over Australian assets.
Foreign Equity Definition
The total value of Australian assets owned by foreigners.
Foreign Debt Definition
The total amount of money Australia owes to foreigners.
Gross Foreign Liabilities
Gross foreign liabilities are the total extent to which overseas investors have a claim over assets in Australia.
Net Foreign Liabilities
Net foreign liabilities are equal to gross foreign liabilities minus Australian holdings of overseas assets.
Foreign Investment
The stock of financial assets in Australia owned by foreign residents.
Direct Investment
When an overseas firm establishes a new subsidiary(branch) firm in Australia, or if they purchase 10% or more shares in an existing Australian company.
Portfolio Investment
Refers to all other foreign investment that is not direct investment and does not result in an increasing ownership or control of Australian enterprises. This happens when they own less than 10% of shares in an Australian company.
Foreign Investment is influenced by a number of factors
- Profit Expectations
- Interest Differentials
- Price Stability
Industries that are recipients of foreign investment
1. Finance & Insurance Sector (55% of foreign investment)
2. Mining Industry - high foreign ownership
3. Manufacturing Sector
Sources of foreign investment
- United Kingdom & United States = dominance in financial markets .
- Japan
Benefits of Increased Investment
1. Boosts employment, economic development and growth. With multiplier effect will increase national income and standard of living.
2. Boosts technological innovation and research capacity. This will ensure that Australia has newer and better goods and se
Costs of Increased Investment
1. Can affect BOP, national income will increase. This will increase spending on imports and increase the CAD.
2. Australia is selling their assets to overseas. Foreign control may conflict with government policy and profits may be given to parent compani
The Current Account and Foreign Liabilities
CAD must be financed by capital inflow. Capital inflow can be in the form of debt or equity, vast majority in Australia is debt because equity investment requires a transfer of ownership and is therefore not attractive to entrepreneurs. Increases in forei
Recent Trends in Australia's Foreign Liabilities
Australia experienced a wave of financial deregulation in the 1980's this made it far easier than previously for Australian firms to borrow from overseas. Since that period, debt has represented an increasing proportion of Australia's net foreign liabilit
Current Stats
Net Foreign Liabilities ~ $781b (~60% of GDP)
Foreign Debt ~ $675b
Foreign Equity ~ $106b
Types of Overseas Borrowing
1. Official Government (public sector) debt
Official debt is borrowing by the gov or private sector. Australia managed to repay most of its debt, until the GFC where Aus had a budget deficit, future generations will have to repay the debt.
2. Non-Official