RDP 9401: Resource Flows to the Traded Goods Sector 3. An Alternative Approach

3.1 The Method

In this paper, a variant of the above “propensity” approach is used to identify the traded and non-traded goods sectors. It follows Dwyer (1992) and takes advantage of information contained in input-output tables. The propensity to export is measured simply by the ratio of exports to total production of each industry contained in the input-output tables; this approach being little different from other measures of export orientation. However, measurement of the propensity to compete with imports does differ significantly from that in other studies.

A useful feature of input-output tables is that imports are described as either “competing” or “non-competing”. Competing imports are those for which there is similar domestic production while non-competing imports are not or cannot be produced locally.^[13] A competing import is, therefore, analogous to an import replacement. To take full advantage of this analogy though, competing imports must then be “matched” to the corresponding domestic industry. This task is facilitated by the way in which imports are allocated to industries in the input-output tables.

Allocation of competing imports can be “direct” or “indirect”. While direct allocation involves allocating imports to the industries that use them, for our purposes, indirect allocation is more relevant. Indirect allocation involves allocating competing imports to the industries that produce similar goods, thus providing useful information about the scope for import replacement.^[14] In this paper, as in Dwyer (1992), the measure of the propensity for import replacement is the ratio of competing imports (indirectly allocated) to the total supply of the corresponding domestic industry.

Having identified the relevant propensities for export and import replacement industries, a criterion for inclusion of an industry in the traded goods sector is nominated. Here, industries are defined as export oriented if at least 10 per cent of their total supply is exported. Similarly, industries are defined as import competing if at least 10 per cent of their total supply is of competing imports.^[15]

This 10 per cent bench-mark rule is, of course, arbitrary. It was, however, chosen on the basis of sensitivity tests. At benchmark values of two percentage points either side of 10 per cent, the profile of the traded and non-traded goods sectors remains stable.^[16] However, as one moves below an 8 per cent benchmark, a large number of industries qualify as both export oriented and import competing.^[17] Conversely, as one moves above a 12 per cent benchmark, only a narrow class of goods – primarily traditional exports – qualify as traded, largely precluding the existence of an import competing subsector. Furthermore, the 10 per cent benchmark yields a profile of the sectors that accords generally with priors: export oriented industries are related mainly to agriculture, mining, selected parts of manufacturing and transport services; and import competing industries are in the manufacturing division. The remaining industries are non-traded and comprise the various utilities and services.

Having defined industries as traded or non-traded, the next task is to allocate resources to them. In this paper, the simple approach of defining all resources in the traded goods sector as tradeable capacity is adopted. The rationale is that resources are not perfectly divisible. This is especially so for investment. For example, where substantial fixed capital expenditure is incurred by firms to engage in production, “little bits” of that investment cannot be clearly assigned to the production of, say, exports compared with goods for domestic consumption. Similar arguments apply for the division of labour. Even if resources were perfectly divisible, at an appropriate relative price, it will be optimal for a firm to export all its output. Potentially, therefore, the entire amount of investment or employment could be defined as tradeable capacity.

3.2 The Data

In order to obtain a detailed profile of the traded and non-traded goods sectors, each of the 109 industries included in the input-output tables of the Australian national accounts were classified as exportable, import competing or non-traded. Official input-output data were used for selected years up to and including 1989/90. To enable the most recent profile of the traded goods sector, unpublished data for 1990/91 have also been used.^[18] Between these years, several industries move between the traded and non-traded goods sector. In these cases, entry/exit is assumed to be graduated.^[19] Details and sources of all data are given in Appendix 1, whilst a description of the industries that comprise the traded and non-traded goods sectors is provided in Appendix 2.

An attempt was made to find investment data for each of the 109 industry categories in the input-output tables. Such data are not available. Instead, unpublished CAPEX investment data for 59 “estimation” industries within the divisions of mining and manufacturing were made available by the Australian Bureau of Statistics (ABS).^[20] These data were supplemented by (aggregate) national accounts data for agriculture, fishing and hunting and a number of service sectors.

The two sources for investment data are necessary to identify investment in the tradeable capacity of the economy as a whole, as opposed to the tradeable capacity of the non-farm sector or the manufacturing division, as has occurred previously. Reliance on these two data sources does, however, pose two main problems. First, disaggregated CAPEX data are not available for all industry categories. Second, for a comparable sector, CAPEX survey data report a lower level of investment than the corresponding estimate from the national accounts.^[21]

The following steps are undertaken to reconcile the investment data from the two sources:

• first, a pro rata increase in the value of CAPEX investment is made so that the absolute value of private investment from this source is equal to that from the national accounts.
• second, where investment data are not sufficiently disaggregated, investment is apportioned to an industry by assuming that its share of group investment is the same as its share of group output.

An attempt was also made to identify employment data to correspond to each of the 109 industry categories in the input-output tables. Unpublished employment data were made available by the ABS for 88 industries in its Labour Force Survey. As above, on those occasions where employment data are not sufficiently disaggregated, employment is apportioned to an industry by assuming that its share of group employment is the same as its share of group output.

Footnotes

For further discussion of the distinction between competing and non-competing (or complementary) imports see explanatory notes of ABS, Australian National Accounts: Input-Output Tables, Catalogue No. 5209.0. [13]

Again, for further discussion see explanatory notes of ABS, Australian National Accounts: Input-Output Tables, Catalogue No. 5209.0. [14]

Or, in the nomenclature of the input-output tables, 10 per cent of total usage. (In principle, total usage equals total supply.) Note also that, with the growth of intra-industry trade in recent years, some industries may be defined as both export oriented and import competing. In this case, output is allocated to the exportable subsector according to the ratio X_o/X_o+M_o, and to the import competing subsector according to the ratio M_o/X_o+M_o, where X_o and M_o are the the propensities to export or compete with imports. [15]

The stability of the profile of the sectors at the 10 per cent benchmark has been confirmed by the Australian Bureau of Statistics (Geneveive Knight, personal communication, July 1993). [16]

In fact, some industries typically thought of as non-traded (such as wholesale and retail trade) also qualified as traded. [17]

They are provisional and confidential estimates generously made available to the Reserve Bank by the Commonwealth Treasury. For further details see Appendix 1. [18]

For example, when an industry is classified as non-traded in 1986/87 but traded in 1990/91, output/investment is allocated with a weight of zero in the first period and one in the last, with weights interpolated in between. [19]

National accounts investment data and those from the CAPEX survey differ both in their source of information and their treatment of speculative construction. (For a detailed description refer to ABS, National Accounts Concepts Sources and Methods, Catalogue No. 5216.0.) Disaggregated CAPEX investment data are only available from the mid 1980s. Additionally, prior to the mid 1980s, capital expenditure on leased equipment was recorded by owner, rather than by the end user. [20]

Typically, the coverage of private fixed capital expenditure in the CAPEX survey is about 80 per cent of that in the national accounts. [21]