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Enduring partners: The US-Australia investment relationship

The United States Studies Centre has released a new report, Enduring partners: The US-Australia investment relationship, by David Uren. The report is a follow-up and update to our landmark 2017 report, Indispensable Economic Partners on the bilateral investment relationship.

In the latest report, I take the opportunity to update my model of the determinants of inward FDI published in the Australian Economic Review in 2012. The model still holds up quite well adding data up to Q1 2020 and can be used to benchmark Australia’s inward FDI performance relative to economic fundamentals since the Australia-US FTA came into force in 2005.

posted on 16 July 2020 by skirchner in Foreign Investment

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State of Confusion: Economic Policy Uncertainty and International Trade and Investment

I have an article in the latest Australian Economic Review, State of Confusion: Economic Policy Uncertainty and International Trade and Investment.

The article quantifies the effect of global economic policy uncertainty on global industrial production and trade volumes. It also quantifies the effect of Australian and US economic policy uncertainty on cross-border trade and investment.

posted on 27 March 2019 by skirchner in Economics, Foreign Investment

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US foreign investment a casualty of Donald Trump’s trade war

I have an op-ed in the AFR on how a 40% decline in FDI in the US undermines one of the motivations for Donald Trump’s rising tariff wall

posted on 01 October 2018 by skirchner in Foreign Investment

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State of confusion: How policy uncertainty harms international trade and investment

I have a new report out with the United State Studies Centre, State of confusion: How policy uncertainty harms international trade and investment.

posted on 21 August 2018 by skirchner in Foreign Investment, Free Trade & Protectionism, Rule of Law

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Deal-breakers? Regulating foreign direct investment for national security in Australia and the United States

I have a new report out with the United States Studies Centre, Deal-breakers? Regulating foreign direct investment for national security in Australia and the United States.

David Uren’s write-up in The Australian here.

There is an op-ed version in the Sydney Morning Herald.

posted on 26 July 2018 by skirchner in Foreign Investment

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Trump’s tariff war doesn’t play to America’s great strengths

I have an op-ed in today’s AFR on America’s move away from its traditional open door policy towards foreign investment. Text below the fold.

continue reading

posted on 05 July 2018 by skirchner in Foreign Investment, Free Trade & Protectionism

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Eight Housing Affordability Myths

I have published a new Issue Analysis with the Centre for Independent Studies, Eight Housing Affordability Myths. In the paper, I show how a number of highly persistent myths about the nature of housing markets, the dynamics of house prices and the drivers of housing affordability condition public policy to focus on excessively on housing demand at the expense of housing supply.

posted on 10 July 2014 by skirchner in Centre for Independent Studies, Economics, Foreign Investment, House Prices

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Scapegoating Foreigners for Domestic Policy Failures in Housing

I have an op-ed in the SMH on foreign direct investment in the Australian housing market noting that foreigners are being used as scapegoats for what are really domestic policy failures. The House Economics Committee will now inquire into the issue:

According to committee chair Kelly O’Dwyer, the inquiry will consider whether the current restrictions on foreign investment in residential real estate serve to increase supply, as is their stated intention, or raise prices.

This is rather like asking whether foreign tourists increase the production of goods and services or raise consumer prices. The answer depends on how flexibly Australian producers can accommodate changes in foreign as well as local demand through increased output.

It is pointless blaming foreigners for inflexible elements on the supply-side of the Australian economy. For that, we should blame local politicians.

Ironically, the inquiry could result in a bringing forward of foreign demand in anticipation of increased controls on FDI in residential real estate. The inquiry should recommend the abolition of the existing controls on FDI in real estate. My guess is the Committee will instead recommend extra conditions be attached to FIRB approvals, along with some additional quantitative controls.

I am also quoted in this story in today’s AFR on anti-dumping measures on imported tomatoes.

posted on 20 March 2014 by skirchner in Economics, Foreign Investment, Free Trade & Protectionism

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Finsia Industry Lunch Forum on FDI Regulation

I will be speaking at a Finsia Industry Lunch Forum on the regulation of foreign direct investment on 28 February. Other speakers include Ian Harper, Anthony Latimer and Tony Mahar. Details and registration here.

UPDATE 28 February: A write up of my presentation by David Uren. Finsia discussion paper here.

posted on 14 February 2014 by skirchner in Foreign Investment

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How Important is an Australia-China FTA to Kevin Rudd?

I have an op-ed in the Business Spectator noting that the Australia-China free trade deal sought by Prime Minister Kevin Rudd would be best facilitated by Australia giving up its micro-management of Chinese FDI. As noted in the op-ed, this is not something that comes naturally to the Prime Minister. While an agreement could be struck that excludes investment, this would be a wasted opportunity. It would also stand in contrast to the growing likelihood of a US-China investment agreement.

Under current arrangements, very little Chinese FDI in Australia escapes scrutiny because of Canberra’s policy of screening all investment by foreign government-related entities, regardless of transaction size.

Canberra maintains that this policy is applied in a non-discriminatory fashion to all foreign government-related investors. But the rules for these entities were only publicly articulated subsequent to the surge in Chinese investment from 2008 onwards. The Chinese can thank the US Embassy in Canberra and Wikileaks for confirming their suspicions that the policy is unofficially directed at them.

The marked deterioration in Australia-China relations during Kevin Rudd’s previous occupancy of the Lodge was in no small part due to the inability of his government to articulate a coherent policy on FDI from China.

Most Chinese FDI proposals are ultimately approved, which in itself is strong evidence that the current level of regulatory scrutiny at the border is costly and unnecessary.

Chinese direct investment in Australia is subject to the same competition, tax, industrial relations, planning, development and environmental laws that apply to other investors.

The additional layer of regulatory scrutiny Australia imposes at the border adds little to these robust regulatory frameworks behind the border. It serves mainly as a vehicle for political interference in commercial transactions the government does not like.

The rejection or modification of foreign investment proposals has often been explicitly protectionist in intent.

Former Treasurer Wayne Swan rejected Singapore Exchange’s bid for the Australian Securities Exchange in part because it would “risk us losing many of our financial sector jobs”.

Minmetals’ acquisition of OZ Minerals was made subject to conditions that were, to quote the former treasurer again, “designed to protect around 2000 Australian jobs”.

The Australian government has even sought to use the FDI screening process to regulate the level of output and employment in local mining operations.

Such micro-management of FDI trivialises the concept of the ‘national interest’ that is meant to inform the application of the treasurer’s discretion under the Foreign Acquisitions and Takeovers Act.

posted on 16 July 2013 by skirchner in Economics, Foreign Investment

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Foreign Exchange Market Intervention a Risk to Taxpayers

I have an op-ed in the Business Spectator arguing that foreign exchange market intervention is a risk to taxpayers who would be better served if the RBA matched its foreign currency assets and liabilities. I also debunk the notion that Australia is a victim of a ‘currency war’:

It has been argued that Australia is somehow a victim of a ‘currency war’ being waged between foreign central banks engaged in quantitative easing. Yet there is nothing unusual about the effects of quantitative easing on exchange rates.

Quantitative easing is simply a change in the operating instrument of the central bank, from a price variable (the official interest rate) to a quantity variable (base money).

In itself, quantitative easing tell us nothing about whether central bank policy is easy or tight. Low inflation and low interest rates in countries like Japan and the United States imply policy settings are if anything too tight, not too easy.

The exchange rate is just one of the channels through which a change in monetary policy is transmitted to the rest of the economy and quantitative easing does not fundamentally alter this transmission mechanism.

In previous decades, Australians worried about a low exchange rate and capital flight. In the current international environment, foreign capital inflows are an affirmation of our relatively sound economic fundamentals and not a bad problem to have.

posted on 18 April 2013 by skirchner in Economics, Financial Markets, Foreign Investment, Monetary Policy

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Foreign Direct Investment in Australia Following the Australia-US Free Trade Agreement

I have an article in the latest Australian Economic Review, Foreign Direct Investment in Australia Following the Australia-US Free Trade Agreement. Here is the abstract:

A model of inward foreign direct investment for Australia is estimated. Foreign direct investment is found to be positively related to economic and productivity growth and negatively related to foreign portfolio investment, trade openness, the exchange rate and the foreign real interest rate. Foreign direct investment is found to be a substitute for both portfolio investment and trade in goods and services. The exchange rate and the US bond rate affect foreign direct investment through the relative attractiveness of domestic assets. Actual foreign direct investment outperforms a model-derived forecast in recent years, consistent with the liberalisation of foreign investment screening rules following the Australia–US Free Trade Agreement.

An ungated version can be found here.

posted on 24 November 2012 by skirchner in Economics, Foreign Investment

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We Welcome Foreign Investment, Except When We Don’t

I have an op-ed in today’s Australian arguing the federal coalition had the right policy on foreign direct investment 24 years ago when it was committed to abolishing the Foreign Investment Review Board. The recent debate on this issue within the coalition almost perfectly mirrors a similar debate in the late 1980s, only this time, the National Party seems to be getting its way. Full text below the fold (may differ slightly from published version).

continue reading

posted on 06 August 2012 by skirchner in Economics, Foreign Investment

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FDI Restrictions for Thee But Not for Me

Qantas is lobbying politicians for FDI restrictions to prevent Etihad from acquiring Virgin or to ease the foreign ownership restrictions in the Qantas Sale Act. Australia’s Hansonite political class will likely choose the former over the latter, at least in the short-run. In the long-run, however, the government will probably have to choose between a majority foreign-owned Qantas or taking Qantas back into public ownership as a loss-making ward of the state.

posted on 22 June 2012 by skirchner in Economics, Foreign Investment

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A New Broom at the FIRB?

New FIRB chairman Brian Wilson promises greater openness in an interview with Glenda Korporaal:

The former investment banker, who has been on the board of FIRB since 2009 and took over as chairman last month, says FIRB is making a greater effort to communicate the government’s foreign investment policies through its website and in briefing sessions for advisers. “It is important for all our constituencies—the Australian public, Australian business, foreign investors and their governments—to understand that the processes FIRB goes through are sensible and rigorous, and open and consistent,” he says. “Being a little more forthcoming, and having a little more transparency, will actually reduce, for some, the suspicion that we hear or read about from time to time.”

Wilson says FIRB is now putting up a lot more on its website about Australia’s foreign investment policies.

The FIRB has some catching up to do when it comes to posting things on their web site. The fundamental problem with the legislation the FIRB administers remains:

“There is only one test—is the proposal contrary to the national interest? What that may be varies over time depending on economic circumstances, community attitudes, geopolitics, a whole gamut of things.”

Then there is this:

“So, I wouldn’t have thought talking to FIRB about a concept or a possible transaction would tip you over the ASX disclosure threshhold.”

Probably not quite the level of certainty investors are looking for, but perhaps a good quote for the M&A lawyers to file away for future reference.

posted on 12 May 2012 by skirchner in Economics, Foreign Investment

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