RDP 9401: Resource Flows to the Traded Goods Sector 1. Introduction

A theme of current macroeconomic policy debate in Australia is the increasing integration of the Australian economy with the rest of the world. Over the past decade, the adoption of a floating exchange rate regime has combined with the dismantling of protection to bring about profound changes in the nation's economic structure and trade orientation.^[1] As both theory and economic history would predict, such international integration has encouraged greater specialisation in production.^[2] There has been a re-direction of output decisions away from import replacement and towards exporting. Indeed, there has been the emergence of an outward-looking economy.

The exportable subsector of the Australian economy has clearly grown. As a share of real gross domestic product (GDP), export volumes have increased significantly since the early 1980s, as has the share of national income contributed by export oriented industries. On the other hand, whilst it is more difficult to identify, the size of the import competing subsector appears to have diminished.^[3] The share of national income attributable to industries described as import competing is estimated to have decreased significantly during the 1980s (Dwyer 1992).^[4] Consistent with this observation of diminished production of import competing goods is the trend rise in the import penetration of domestic sales.

It might be expected that the structural change evident in the allocation of output has been associated with a change in the allocation of resources both to and within the traded goods sector. In recent years, there have been a variety of studies about the allocation of resources to Australia's traded goods sector – that is, tradeable capacity. They focus on the direction of private investment.^[5] The results have been mixed and, in some cases, counter-intuitive. For instance, few studies have identified an increase in investment in export capacity, and yet an increase in the export orientation of the Australian economy has clearly occurred. Conversely, few studies have identified a fall in investment in import replacement, and yet replacement of imports by domestically produced goods has declined.

Estimates of tradeable capacity are sensitive to the method of identifying tradeable output. In this paper, industries are classified as exportable, importable or non-traded following Dwyer (1992). Resources in each industry are then allocated to the traded and non-traded goods sectors accordingly. Both investment and employment data are used. Results are generated that differ significantly from those reported in other studies, especially with respect to the share of resources allocated to export oriented and import competing industries.

The paper is organised as follows. Section 2 presents some existing approaches to the measurement of tradeable capacity. In Section 3, an alternative classification of the traded and non-traded goods sectors is described. Section 4 presents estimates of the sectoral allocation of investment, while Section 5 presents corresponding estimates of the sectoral allocation of labour. Section 6 summarises and concludes.

Footnotes

For a discussion of some of these issues see Bullock, Grenville and Heenan (1993). [1]

See Balassa (1966, 1977) and Grubel (1967) for an historical account of the specialisation in production that has been both predicted and shown to follow tariff reductions. [2]

The import competing subsector is more difficult to identify because its classification entails a judgment about the extent to which domestic production is substitutable with imports. [3]

Dwyer (1992) examines the period from 1974/75 to 1986/87. [4]

See Treasury Dept (1987, 1988), BIE (1989, 1990), Wood, Lewis and Petridis (1990) and Kent and Scott (1991). [5]