Tutorial week 8 discussion question 1

Australia’s Gross Domestic Product (GDP) per capita in the past decade has shown considerable growth. More surprisingly however is the limited extent to which the global financial crisis had impacted on Australian productivity and economic growth. The significance of this can be shown through analysing the GDP per capita adjusted for purchasing power parity.

Graph 1
[pic]
Graph 2
[pic]

Graphs 1 and 2 highlight the growth trend in GDP per capital from the years 1998 to 2009. Note that New Zealand’s GDP per capita is overall lower than Australia but this is not the point of interest. What is to be highlighted is that Australia’s trend of growth continues to increase, however New Zealand’s trend declines slightly in the year 2009 which reflects the policy implemented and the time lag it took for the global financial crisis to affect GDP per capita.

Graph 3
[pic]
To further reinforce Australia’s position is the Canadian trend which shows a reduction of GDP per capita during 2008, and as confidence in the economy picks up, the GDP per capita for 2009 is much more positive.

As shown through the graphs, Australia is in a relatively stable position in terms of GDP per capita as compared to other developed nations, with no fluctuations and only a steady increase in growth reflecting the successful macroeconomic policies which promote consumption and consumer confidence in the economy.

Although successful policies implemented by the Government and the RBA may have dampened the effects of the global financial crisis and allowed our GDP per capita to stay strong and continually increase, there are other factors which have contributed to Australia’s current strong position in GDP per capita.

Australia has always been a country with high mineral yields, which has driven the economy significantly even today. This is because Australia has the world’s largest deposits of recoverable brown coal, lead, rutile, zircon, nickel, tantalum, uranium and zinc, and ranks second in the world for bauxite, copper, gold, ilmenite and silver. Australia’s reserves of industrial diamonds are also ranked third largest in the world and reserves of manganese ore are ranked fourth, lastly Australia is the world’s largest exporter of alumina, black coal, iron ore, lead and zinc. All of these highlight the magnitude of Australian resources and the demand internationally (Dept of foreign affairs & trade, 2009)

The value of exports from the mining industry has almost doubled since 2003–04. In 2006–07, mineral resource exports, not including oil and gas, totalled to around $90 billion, this is approximately 65% of Australia’s total commodity trade.
The rapid increase in the value of exports is due to the increase in commodity consumption by China where iron ore, coal, lead concentrates, copper, LGN and LPG are major export products from Australia. Furthermore India’s demand for resources such as coal, gold, and fertilizers has also risen sharply since 1990 with an increase of 207%. The increase in demand from China and India, followed by steady demand from Japan, South Korea, and Singapore has shown to be one of the driving forces in Australia’s increasing per capita income.
Overall the amount of Australian exports as individual sectors can be seen in graph 4
Graph 4

Direction of Merchandise Exports 2008-09
It can be observed that there is a general upward trend in exports for agricultural, mineral and fuels and other goods, whilst manufacturing has reduced. The fact that minerals and fuels as its own category increased 50.4% within one year shows the abundance of minerals and the world demand for Australian resources.
The effect of the abundance of natural resources in Australia and the increased international demand for the resources directly affects the economy such that according to the Australian department of Foreign affairs and Trade in 2006–07, over 80 per cent of resource output was exported, accounting for approximately 49 per cent of total goods and services exports. During that period, the minerals and petroleum industries produced over eight per cent of Australia’s GDP and accounted for 63 per cent of Australia’s merchandise export earnings.
This ultimately shows that the abundance of natural resources in Australia contributes a significant amount of movement in the economy and pushes GDP per capital up as the economy moves.

What we have gained from British influence, especially since the first settlement has significantly changed how Australia is perceived in the world. From once being a convict colony to now a flourishing economy in pretty much the centre of all recent business attention.

In the text reading by Gregory Clark, he specifically asks the question of ‘’why the take over by the British in Australia propel a part of the world that had not developed agriculture by the 1880’s into the first rank amongst developed economies’’

What is argued is that areas which have not had much influence from settled societies cannot instantly adopt institutions and technologies of the more advanced economies. However, Australia was deemed as a colonisable area in reference to the British definition. There was no need to instantly learn and adopt institutions from Britain by the native Aboriginals; instead it was already basic knowledge for the colonists. Thus did not prove to be a major challenge in implementation and adaptation and helped Australian society progress much faster as compared if the Aboriginals were made to adopt the new world institutions from Britain.

Furthermore, Bernstein W.J argues that new technologies is the powerhouse for per capita growth and as such there are also certain principles which needed to be developed in order to create new technologies and thus improve per capital income.
The four requirements for improvements include Property rights, scientific rationalism, capital markets, and fast and efficient communications and transportations. These four institutions show the progress of a nation in terms of social advancement and balance allowing human welfare to improve and the economy to progress effectively. Ultimately providing a platform which Bernstein W.J argues that even without one particular institution, chaos may emerge as shown with eighteenth century Holland with the British naval blockade causing transportation and communications to falter, communist states where property rights are lost, the middle east with the absence of capital markets and western rationalism, and finally Africa whereby most of all four factors still not developed. The economies which have lacked these four institutions have historically been lagging behind in all aspects of social advancement and welfare.

Hence, institutions which were inherited from Britain has significantly changed the way the Australian economy is operated and thus has allowed progress to be made in terms of high GDP per capita as compared to other world economies.

The Australian spirit which all Australians are born with promotes hard work, ingenuity and problem solving in difficult times. This spirit which can be apparent in the past through the sacrifices made during the world wars and also in modern times through new inventions and applications which allow increased welfare as a whole such as polymer bank notes, The Australian Ballot and latex gloves. These prime examples of Australians ‘’can do’’ approach shows that without the Australian spirit, the abundance of natural resources nor the institutions inherited from the British would have made much of a difference if there was no primal drive for Australians to achieve higher than what is expected of them.

Essentially, it is extremely fortunate that Australia has such an abundance of natural resources which can be used for both the benefit of external development and internal advancement. However, without the institutions inherited from the British there would have been no balance in social order to allow for any type of development of the economy and thus reduce the effectiveness of the abundance of natural resources as there would be significantly less resources being utilised and thus less international trade. Furthermore, the Australian spirit also plays a significant part in the whole spectrum of Australia’s strong GDP per capita as it has proven time and time again historically that it is this spark which allows Australians to push forward and achieve higher than before.

References

Bernstein W,J, 2004, the birth of plenty, McGraw Hill

Clark G, 2007, A farewell to alms, Princeton university press, New Jersey

Department of Foreign Affairs and Trade, About Australia: Resources sector fact sheet

Direction of exports, DFAT STARS database, 2009

McDonald, T, 2009, the Economic Outlook & the Global Financial Crisis Address to the 2009 Tasmanian Economic Forum, 4 December

-----------------------
[pic]