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

EXPORT PRICE INDEX IMPORT PRICE INDEX

TERMS OF TRADE

x 100/1=

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