How does New Zealand balance the benefits with the risks?
Investment by foreign investors is a major stimulus to economic growth and development, even in developed countries like New Zealand. But is it all good news? Olufemi Omisakin, a lecturer at our Auckland International Campus, has analysed Foreign Direct Investment (FDI) in New Zealand from Australia, the United States and China.
New Zealand is attractive to foreign investors, and Foreign Direct Investment (FDI) in New Zealand far exceeds investment by New Zealand investors in other countries. FDI is an important source of investment capital for New Zealand businesses, and is associated with positive effects on jobs, productivity and export focus. New Zealanders benefit from enhanced employment opportunities, lower interest rates for borrowers, and more choice of goods and services.
However there are also risks associated with the level of FDI in New Zealand:
- There is potential for withdrawal of capital, as we have seen recently with the decision by Bauer, owner of many New Zealand magazines, to pull out of New Zealand.
- Profits may be repatriated to the investor's country of origin rather than reinvested in New Zealand.
- Property prices are higher, making it harder for New Zealanders to buy a house.
- There is concern about the loss of control of New Zealand's productive land, with the risk that food prices in New Zealand rise.
Olufemi concludes that New Zealand needs a regulatory framework that achieves a balance, to continue to attract FDI to New Zealand while also protecting our national interests, for example ensuring that domestic businesses without FDI can still complete successfully. His co-authored article, published in the Journal of International Business Research, is available below.
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