RDP 9106: The Direction of Australian Investment from 1985/86 to 1988/89 5. Previous Findings on the Tradeable/Non-Tradeable Investment Mix
August 1991
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In recent Australian studies on the direction of investment, the delineation of industries as either tradeable or non-tradeable ranges from identification at an aggregated level (Treasury (1987, 1988, 1989 and 1990)), to quantitative analysis of the tradeability of individual industries (Wood, Lewis and Petridis (1990), and the Bureau of Industry Economics (1990)). Having determined the tradeability or otherwise of an industry/sector, Treasury (1987, 1988, 1989 and 1990) and the BIE (1990) go on to attribute all of that industry's/sector's investment as either tradeable or non-tradeable investment. Wood, Lewis and Petridis (1990) use export propensities to calculate how much investment in any one industry is directly attributable to creating export capacity.
(a) Treasury
Using aggregated data the Treasury have calculated the level of investment in the tradeable sector. Treasury classified mining, manufacturing and “other non-manufacturing industries” as tradeable. “Other non-manufacturing industries”, which includes entertainment, recreation, hotels and personal service industries, was classified as tradeable on the basis of increased numbers of foreign tourists visiting Australia. The finance, property and business services sectors and all other service sectors were classified as non-tradeable.
Using published CAPEX data, Treasury's 1989 budget analysis concluded that a sharp lift in investment occurred in tradeable industries over 1985 and 1986, following the depreciation of the Australian dollar in 1985, but that this share had tapered-off in more recent years. Treasury identified investment in non-commodity tradeables – notably tourism – as the fastest growing sector since 1982/83. In the 1990 Budget papers the Treasury provided figures which showed that over the two years to 1988/89 business fixed capital stock in the non-tradeable sector had grown at a faster rate than growth in the tradeable sector's capital stock.
(b) Bureau of Industry Economics
The BIE (1990) investigated the share of tradeable investment in the manufacturing sector using unpublished data on investment in 28 manufacturing groups and trade data (mostly at the ASIC 3 digit level).[10] To assess whether an industry was tradeable or non-tradeable the BIE (1990) calculated import penetration ratios and export propensities. The export propensity (e) was defined as
where X is the volume of exports for a particular industry; and S is the volume of domestic manufacturers' sales.
The import propensity (m) was the ratio of the volume of imports (M) to the volume of total domestic consumption. Total domestic consumption is equal to the sum of domestic manufacturers' sales plus imports less exports.[11]
An industry was classified as an import competing industry if its import penetration ratio was greater than 10 per cent and export propensity less than 10 per cent. Export industries had export propensities greater than 10 per cent and import penetration ratios less than 10 per cent. Non-traded industries had both ratios less than 10 per cent. Industries with both import and export ratios greater than 10 per cent were classified as intra-industry trade industries.
The BIE (1990) found that there had been no change in the share of investment in the manufacturing sector going into tradeables industries, although within the tradeables sector the relative shares going to export, import and intra-trade industries did change. Between 1984/85 and 1987/88 the share of investment going into import competing industries rose by 9 percentage points. This rise was offset by a fall in the share of investment going into export industries and intra-industry trade industries. There was a slight tendency for industries with high import penetration ratios to have recorded a faster rate of growth in investment than industries with lower import propensities. Overall they concluded that there was no clear relationship between increased investment and import substitution or export growth.
(c) Wood, Lewis and Petridis
The Wood, Lewis and Petridis (1990) study over the period 1980/81 to 1987/88 involved weighting the sum of capital expenditure figures for investment in eight broad manufacturing subdivisions by export propensities. Wood et al. (1990) assume that manufacturing industries have the same capital to output ratio in production for domestic and export markets. They are thus able to define investment in export creating capacity (w) as follows:
| Where | ei is exports of industry i / output in industry i; |
| Ii total investment in industry i; and | |
| n is the number of industries in the survey. |
For the manufacturing sector as a whole, they found investment in export capacity was pro-cyclical to total manufacturing investment until 1984/85. The proportion of total investment going into export capacity peaked at 25 per cent of total manufacturing investment in 1982/83. By 1984/85 it had declined to 16 per cent, with only a partial recovery after the depreciation of the Australian dollar in 1985. In 1987/88 20 per cent of total manufacturing investment was in export capacity creation. They found no “… sizeable and permanent shift in the pattern of investment toward export creation …” (Wood et al. (1990), p. 3).
Wood et al. (1990) found an increase in the manufacturing sector's overall propensity to export in the 1980s but with investment concentrated in industries with relatively lower export propensities.[12]
Footnotes
The BIE derived a capital stock series based on the Manufacturing Census carried out by the ABS. See Karpouzis and Offner (1983) for a discussion of the creation of this series. [10]
No adjustment was made for stocks. [11]
