Australia's global role in the economy

Topics: Foreign exchange market, International economics, Macroeconomics Pages: 19 (3919 words) Published: March 5, 2014
 Australia’s Role in the Global Economy

2.2 Australia’s Trade and Financial Flows

2.2.1 Value, Composition and Direction of Australia’s Trade and Financial Flows

International trade has historically played a very significant role in the development of the Australian economy

Due to geographical isolation – trade has always represented high proportion of Australia’s economic activity, overseas market for Aust.’s primary commodities (agricultural products, minerals), imports new technology and items not produced in Aust. (small population size)

Only producing 2% of GWP

Export 1/5 of Aust. production, import 1/5 of GDP  Aust. economy has little influence on developments in global economy - world economic developments can have significant impact on Aust.

Trends in Australia’s trade pattern:

Trends in Exports:

Traditionally, Aust. relied on rural products for its export income

1950s: agricultural commodities (wheat, wool) were main sources of income

Mid-1950s: over 80% of export income was earned from agricultural products

Mid-1980s: exports in agricultural products fell to 35%

1999-2000: exports in agricultural products fell to 26%

2008-2009: exports in agricultural products fell to 12.7%

Exports of minerals and fuels had assumed much greater importance:

Mid-1950s: 3%

Mid-1980s: 38%

1999-2000: 37%

2008-2009: 60.5%

Manufactured items exported:

Mid-1950s: 11%

1999-2000: 24%

2008-2009: 13.5%

Major problem relying on agricultural and mineral exports – volatile world prices for those commodities. Fluctuations in prices can often be extreme

STM’s: Simply transformed manufacturers (low value added) e.g. wine – Aust. does much of these

ETM’s: Elaborately transformed manufacturers (high value added) e.g. cars

Composition of Aust. exports:

1950s: most exports went to UK and Europe

1998-1999: most exports sent to Asia (particularly Japan) and North America

1990s: Continuous emphasis on improving ties with Asian countries to benefit from high growth rates occurring in the region

2000: China became important trading partner, India could also become very important

During GFC: Aust., compared to other advanced economies, suffered less impacts due to (some extent) exports to China did not have a sharp decrease

Trends in Imports:

Traditionally, manufactured goods have been major imports and still remains

Capital equipment has been the area of fastest growth and accounted for over 25% of all imports in 2009

Unlike commodity exports, manufactured goods tend to maintain/increase their prices on the world market

Source of imports changed from UK and Europe towards US and Asia. Japan is an important trading partner but facing strong competition form other countries like China

Composition of Aust. imports:

Increase in consumer goods due to high rise in materialism and wealth, and relaxation of tariffs and local content rules

Significant increase in capital goods over recent years due to increase in mining – related to ‘Dutch Disease’: high AU$ (due to mining boom) means many Aust. industries cannot compete internationally and end up folding

Shifting away from intermediate goods as manufacturing sector cannot compete with China Growth of service sector  less reliance on imports

Intermediate goods: semi-finished goods e.g. glass, wood etc.

Trends in financial flows

Australia’s net international investment position represents the difference between the stock of foreign financial assets and foreign liabilities at a particular date or the sum of net foreign equity and net foreign debt

Net foreign debt reflects the borrowings by Australians from foreigners less what foreigners owe to Australians

Net foreign debt has been increasing since 1980s and in 2008-09 – represents 50.6% of GDP

Net foreign equity has been relatively stable since 1980s and in 2008-09 – represents 6.5% of GDP

As a...
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