Australia and the Pacific Economy*

The industrialization and growth of East Asian countries has shifted the centre of world trade and economic activity towards the Pacific. There has already been a huge redirection of Australia's trade and external economic interests towards the region, based importantly on the emergence of Japan as a major economic power. Australia's future economic prospects will be significantly determined by how it manages its trade policy interests in the context of continuing East Asian industrialization. The most promising Australian trade policy approach is one which allies Australia's trading interests to those of East Asian countries in seeking to maintain an open non-discriminatory trade regime, supportive of the transformation of trade specialization necessary to the industrialization of resource-deficient countries, and which marries that objective to the liberalization of her own and Pacific country markets.     

How Important is APEC to China?

APEC is an important forum for China to show its commitment to economic openness. Concerted trade liberalisation in the APEC region reduces the adverse terms of trade effect of China's own trade liberalisation. These help maintain the momentum of reform by reducing domestic resistance. APEC is not a stepping stone to WTO membership, but it gives China an opportunity to rally international support for its early entry into the WTO. However, APEC cannot substitute for WTO membership. This is not only because the WTO framework provides greater security for market access for Chinese exports as well as potentially larger gains to the Chinese economy, but also because it imposes legal bindings on China's trade policy once it becomes a member. In facilitating China's trade liberalisation, APEC and the WTO seems to be mutually re-enforcing. APEC prepares China for the WTO and the WTO accession pushes China to go along with the APEC process. Both APEC and WTO accession push forward domestic reform.     

When east meets south: economic gains from India-APEC trade

As India, potentially one of the largest economies in the world, seeks membership to the Asia Pacific Economic Cooperation forum (APEC), a case for its inclusion in an expanded APEC is examined. The methodology and empirical design as developed in Marwah and Klein (1995) within the framework of a world trade matrix consists of seven regions divided into India, components of APEC, and the rest of the world. The growth of economic cohesiveness within APEC between 1965 and 1995 is quantitatively assessed by patterns of trade linkages through measures of bilateral reciprocity, multilateralism, and market diversification. Entropy indexes of the trade matrix are computed and used in the analysis. Since 1991, when massive economic reforms were implemented, India has experienced strong growth in exports and in imports, a departure from its previous performance. Furthermore, its external orientation has shifted positively and significantly since the reforms. Despite this, during the latest five years, India's integration with APEC hadn't changed to a level of statistical significance. The case for an expanded APEC, including India, is still somewhat prospective but the evidence is growing that it could prove beneficial to all the member countries. For India to benefit in this expanded APEC, it should continue to press its case for inclusion in the Asia Pacific Economic Cooperation forum (APEC).     

Private bureaucracies,organizational efficiency,and Australia's manufacturing trade structure: a comparison with Japan

This study tests the hypothesis that use of in-house information services, which are approximated by the relative size of private bureaucracies or the ‘management sector’, is a statistically significant determinant of Australia's manufacturing trade structure. Large private bureaucracies are a feature of industrialized economies. Their growth, and concomitantly huge resource use, suggest that informational and organizational efficiency have become of paramount importance for economic development. However, variables trying to capture these phenomena are neglected in mainstream trade analysis. The study is conducted for a cross-section of Australian industries and the results are compared with those obtained from a similar study for Japan. The empirical results confirm the importance of private bureaucracies as a trade determinant. Moreover, they seem to dominate some major conventional factors. In the Australian case, the new variables capture an increasingly important aspect of ‘human capital’, i.e., its potentially inefficient use due to lack of organizational innovation. Comparison with Japan indicates major structural weaknesses of Australian manufacturing which hinder the development of a revealed comparative advantage and exports. The paper also comments on the controversial debate concerning Australia's current account deficit, and on the broad implications of the study's findings for economic policy. It concludes with suggestions for further research.     

THE IMPACT OF TRADE AND INVESTMENT AGREEMENTS ON AUSTRALIA'S INWARD FDI FLOWS

International trade and investment agreements are one of the primary instruments of global financial liberalisation. They are enacted to enhance the flows of foreign direct investment (FDI) between signatories by reducing regulatory barriers to investment; promoting stable host investment environments; and guaranteeing investors against non‐commercial risk. As a net capital importer, Australia has sought to attract FDI through participation in such accords since the early 1980s. This paper examines the determinants of Australia's inward FDI flows—focussing specifically on the effects of trade and investment agreements. Using panel data, we find that both bilateral trade and bilateral and multilateral investment agreements attract FDI flows into Australia, thereby indicating that the policy of enticing FDI through participation in these accords is quite possibly effective.     

Agglomeration and Economic Development: Import Substitution vs. Trade Liberalisation

This paper analyses a model of economic development in which international differences in industrial structure and income are caused by the agglomeration of industry in a subset of countries. Economic development may not be a gradual process of convergence by all countries, but instead involve countries moving sequentially from the group of poor countries to the group of rich countries. The role of trade policy in promoting industrialisation is studied. While both import substitution and unilateral trade liberalisation may be 'successful' in attracting industry, they attract different sectors and welfare levels are higher under trade liberalisation.     

The Revival of Economic Liberalism: Australia in an International Perspective

Abstract
Over the past 15 years or more, all the member countries of the OECD, including Australia, have liberalised their economic systems: there has been a general adoption of market-oriented economic reforms. This article surveys the process of reform during this period for all the OECD economies, but with special reference to developments in Australia. It looks at five main areas of policy: financial markets (national and international), public finance, privatisation and deregulation, labour markets, and international trade. It considers in turn the nature of the process, the course and content of reforms, the main causal influences at work, and the impact and significance of liberalisation. In doing so, it draws extensively on work carried out in the OECD Secretariat.     

The Pattern and Determinants of Intra-Industry Trade in Australian Manufacturing

This paper presents the pattern and determinants of intra-industry trade (IIT) in Australian manufacturing since the late 1970s. The results point to a sharp rise in IIT from the mid 1980s which appears to be linked with an outward-oriented policy. Industry-level analysis indicates that industries which experienced a sharp fall in protection are the industries with the higher levels of IIT. These include textiles, garments, rubber products, and machinery and equipment. An increasing trend in IIT suggests that the short-term adjustment costs associated with trade liberalisation are likely to be lower, and that liberalisation can proceed without huge short-term adjustment costs. Using a logit model the determinants of IIT are investigated. Results indicate that IIT is positively related to product differentiation and scale economies, and negatively related to the levels of protection and foreign ownership in the pre-liberalisation period. In the post-liberalisation period, however, scale economies explain the inter-industry variations in IIT. R&D intensity and close economic integration appear to have no impact on IIT regardless of the nature of the policy regime.     

Tariffs, Then and Now: Lecture in Honour of the Late Bert Kelly

While much of the Australian trade liberalisation for which Bert Kelly fought has been achieved, there are still areas of highly selective protection, particularly in textiles, clothing, footwear and passenger motor vehicles. An analysis is made of arguments for continued assistance which are advanced in some quarters: that Australia should not reduce its barriers unless other countries also do so and that we are 'leading the pack'; that frontier barriers should not be reduced unless microeconomic reform in Australia is acccelerated; that because other countries may exclude automobiles from their APEC commitments, so should Australia; that small tariffs don't matter; and that local pain overshadows national gain. Bert Kelly would have found many of the arguments all too familiar.     

Should AFTA and CER Link?

This article examines the logic of the link between the ASEAN Free Trade Area (AFTA) and the Closer Economic Relations (CER) regional trading arrangements which was mooted by the Thai Prime Minister in 1993. AFTA and CER are the only two regional trading arrangements in the East Asia/West Pacific region and both are advancing to a high degree of regional integration. This article argues that there are undoubted gains to be had from an AFTA-CER link by itself which includes reciprocal trade liberalisation as well as trade facilitation. Both groups of countries would benefit from freer trade between them and both have a lot to learn from the experiences of the other regional trading arrangement. However, this link will be redundant if the Bogor Declaration of the APEC is implemented after the Osaka meeting of APEC Leaders in November 1995. If, instead, multilateral trade liberalisation through the World Trade Organisation and APEC falters, an AFTA-CER link becomes an important possibility.     

The Dynamic Effects of the US Productivity Boom on Australia*

How has the USA's ‘new economy’ productivity boom affected Australia? We consider this question using a dynamic multisector growth model of the Australian and US economies. We find that productivity growth in the US durables sector generates small but important gains to Australia. We find that the transmission of growth is generated through increased export demand for agriculture. Consequently, the USA's productivity growth tends to favour Australia's traditional export sectors. Likewise, it increases the relative demand for less skilled labour in Australia and reduces the demand for more skilled labour and higher education.     

APEC's Trade Liberalisation and the WTO

The APEC process for trade liberalisation differs from that of the WTO multilateral and regional processes. This article outlines and assesses the APEC process and considers how it might facilitate the WTO process.     

AUSTRALIAN COMMODITY EXPORT PASS-THROUGH AND FEEDBACK CAUSALITY FROM COMMODITY PRICES TO THE EXCHANGE RATE

Commodity export pass-through is examined for Australia in an attempt to determine whether Australia is a price-taker in its commodity export trade. This is undertaken for seven categories of Australia's main commodity good exports. We also determine if there is feedback causality from particular world commodity prices back to the exchange rate as is often hypothesised for commodity good intensive exporting countries. It is found that Australian commodity good export pass-through is complete for the goods which are relatively less important in its export trade but is incomplete (although high) for the goods which are most important in its export trade. There is significant feedback causality to the exchange rate from the world price of coal and wheat, two of Australia's most important commodity good exports over the 1980s and early 1990s.     

Business Cycle Co‐movement between Australia and East Asia

This article analyses business cycle co‐movement between Australia and 10 major economies in the East‐Asian region by using two measures: concordance indices and correlation coefficients. The results from the concordance index suggest that Australia's business cycle is becoming increasingly synchronised with those in East Asia, particularly with China and Japan. The correlation coefficients of gross domestic product (GDP) growth and the deviation of real GDP from its trend between Australia and its East‐Asian neighbours are also significantly higher since 2000, relative to the correlation coefficients found for the 1990s. The growing importance of East Asia in Australia's economic future implies that the risks facing the economy have changed and Australia needs to engage in more macroeconomic policy dialogues with its neighbouring economies to improve their policy responses.     

Protection and Liberalisation in Australia and Abroad

This article reviews changes in Australian protection policy between 1967 and 1995, particularly the political economy aspects. The story is quite complex, and until 1974 was unusual by international standards, with a sophisticated Australian tariff debate and the remarkable transparency role of the Industry Assistance Commission (IAC), and its predecessor, the Tariff Board. The role of Alf Rattigan, Chairman of the Tariff Board and later the IAC, is stressed. Liberalisation since 1988 has been drastic, so that most tariffs will be brought down to 5 per cent by the year 2000. All quotas were ended by 1993. This can be contrasted with very high protection levels in 1967 and quite high levels even in 1987. Substantial unilateral trade liberalisation normally requires exchange rate depreciation, and the floating of the Australian dollar made the tariff reductions possible. The motives for Australian trade liberalisation in the 1980s are compared with those for similar liberalisations in many developing countries.     

Chinese foreign direct investment in Australia: policy issues for the resource sector 1

The past 18 months have seen Chinese foreign direct investment (FDI) in the Australian resource sector become an issue of policy interest. There are two big questions that the prospects of a significant rise in FDI from China into the Australian resources sector have raised. Is the surge of FDI into Australian mining and energy consistent with achieving the traditional gains from foreign investment? And are there any particular problems associated with investment from foreign state-owned enterprises or state-managed sovereign wealth funds? These are among the questions addressed in this paper. The paper argues that there are no issues that cannot be dealt with under the umbrella of the established test of ‘national interest’ in managing the growth of Chinese FDI into the Australian minerals sector. It argues that a confusion has been introduced into policy over the questions of state ownership and supplier–buyer relations in respect of Chinese investments and that clarifying these issues is likely to be important to Australia's capturing the full benefits from the growth of Chinese resources demand and longer term economic and strategic interests in China.     

Liberalizing Services Trade In APEC: A General Equilibrium Analysis with Imperfect Competition

The paper studies services-sector trade liberalization in the Asia–Pacific Economic Co-operation (APEC) Forum using a global, multicountry, multisector applied general equilibrium model with an imperfectly competitive service sector. Reducing the service sector's nontariff barriers is modeled by eliminating the possibility for oligopolistic firms to price-discriminate between client countries within APEC and lowering the fixed costs of the firms doing service exporting business. The results suggest that services trade liberalization reinforces existing sectoral trade balances. Increase in demand for intermediate services tends to reinforce rather than counteract the role of primary factors in determining sectoral comparative advantage. The western APEC members received the greatest welfare gains from services trade liberalization, while the developing economies gained more if only tariffs were eliminated.     

Trade openness and the effectiveness of fiscal policy: some empirical evidence

Is the potency of fiscal policy lower for more open economies, as suggested by economic theory? Using annual data from the period 1951?C2007, for 62 developed and developing economies, the paper??s empirical findings show that the effectiveness of fiscal policy is indeed reduced by an economy??s trade openness, and that the effect is quantitatively substantial. In particular, the paper??s estimates suggest that an increase in trade openness by 10% of GDP reduces the magnitude of the long-run fiscal multiplier by 5?C6%.     

The role of price and nonprice factors in predicting Australia's trade performance

This article investigates the role of price and nonprice factors in predicting Australia's trade performance. Results broadly suggest that Australia's trade performance is largely explained by the nonprice factors namely, R&D, reliability of domestic supply, aggregate world demand and Foreign Direct Investment (FDI) flows in long run. Price factors such as, relative price of Australian exports and domestic prices are also important predictors of trade competitiveness. The policy implications of these findings are that there are dividends in terms of improved trade performance by encouraging R&D expenditure, attracting FDI, improving domestic supply and implementing appropriate policies to improve price competitiveness.     

The desirable form of openness for Indian agriculture

How open should a developing country's agriculture be to theworld economy? What are the medium-term effects for growth andincome distribution of 'close' integration with world agriculturalmarkets through trade liberalisation and domestic reform? Andwhat are the implications of the 'strategic' integration ofagriculture with world markets? Using a dynamic computable generalequilibrium model, these questions are addressed for the Indianeconomy. The simulation results show that the costs of 'close'integration are large and unevenly distributed, irrespectiveof whether the agricultural reform is immediate or gradual.One form of 'strategic' integration is operationalised thatyields more desirable outcomes in terms of growth and incomedistribution. The paper also compares the effectiveness of thetwo policy regimes in coping with an adverse supply shock.