Living standards, terms of trade and foreign ownership: reflections on the Australian mining boom

Authors


  • Much of this work has been undertaken with Professor Sheehan at Victoria University, Melbourne. I have benefited from presentations at Columbia University and the University of Wisconsin. I have had wide ranging discussions with Rob Bray, Peter Sheehan, Tue Gorgens, Quentin Grafton and Bob Haveman. These good friends have helped a great deal. The ABS has also been very helpful and a referee did a first class job in providing comments. An early version was prepared for the Feb. 2011 Conference ‘Resource Boom; Understanding the National and Regional Implications’ at Victoria University, Melbourne.

Abstract

Australia is experiencing its largest mining boom for more than a century and a half. This paper explores, from a national perspective, important economic differences that arise when a mining boom, such as the current one, is generated by sustained export price increases (trading gains) rather than export volume increases. Since 2003, the terms of trade changes – through their direct trading gain effect and indirect real GDP effects – have increased Australian living standards. The increase, measured from official data and relative to the United States, is about 25 per cent; an increase that probably places Australian living standards well above those of the United States. But official data inadequately adjusts for foreign ownership of mining resources suggesting that this estimate is probably a little too high.

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