Private investment and the current account deficit

Another day, another "she'll be right" claim, this time aimed at the amount of investment in Australia (or lack thereof):

The claim that Australia is suffering an investment drought as mentioned by Michael Potter in today’s AFR does not stack up. We continue to run a current account deficit, hence a capital account surplus. Any worthwhile project can obtain finance. Many poor projects cannot and should not obtain finance.

At face value the statement is true. Australia borrows far more capital from overseas than it lends, hence the persistent capital account surplus. But the claim falls apart under a closer examination of the words "worthwhile project". An enormous amount of the foreign capital flowing into Australia is used to pur …

Please sign in to view the rest of this research article.

Sign in

About the author

Dr Justin Pyvis is the Founder and Chief Economist at Pixelics. Justin is a published academic who has previously worked at AECOM, a global consultancy on the Fortune 500 and more recently with Asianomics Group, an economic, corporate and technical analysis research company based in Hong Kong.