Published on March 18, 2009
Issues and Trends in the Balance of Payments
1. The structure of Australia’s export base • Australia’s export base includes all of the products that Australia produces for export • Australia’s export base has a signiﬁcant impact on the inﬂow of funds on the current account • Australia’s export base is heavily weighted towards primary products, commodities etc
The structure of Australia’s export base • This is often termed a “narrow” export base because we are relying on a few products for export $$ • a “narrow” export base is not good for the CAD as we are exposed to large ﬂuctuations in commodity prices • Despite the fact that this has been increasingly seen as a problem for Australia, exports have been become more heavily focused on these products
The structure of Australia’s export base • Concern is also sometimes raised that Australia does not have an adequate IT sector or manufacturing sector and this means that we are two reliant on imports (meaning a higher CAD) • many economists suggest that Australia needs to broaden its “export base” by producing more manufactured goods and exporting many more services
2. International competitiveness • If Australia is not competitive on an international scale, it will be very difﬁcult to improve trade performance • Australian exports have typically not been very competitive on an international level • Improving the international competitiveness of Australian businesses ultimately depends upon paying attention to speciﬁc industries and their performance
3. Structural Change • Microeconomic reform policies are those government policies which aim to improve the efﬁciency and productivity of producers within individual industries • Australian governments have implemented extensive microeconomic reforms over the past 20 years in an attempt to broaden our “export base” • these reforms have attempted to address structual factors which affect our
Structural Change • These microeconomic reforms have attempted to address structural factors which affect our international competitiveness such as: • inﬂation • wages growth • productivity levels • efﬁciency of the public sector
4. Terms of Trade • The Terms of Trade shows the relationship between the prices that Australia receives for its exports and the prices that it pays for its imports TERMS OF EXPORT PRICE INDEX = x 100/1 TRADE IMPORT PRICE INDEX
Terms of Trade • E.g. if export prices are increasing relative to import prices then Australia’s terms of trade will improve • On the other hand, if import prices are increasing relative to export prices then Australia’s terms of trade will deteriorate • Australia’s narrow export base has been a consistent problem for Australia’s Terms of Trade in recent years
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