Long-term Patterns in Australia’s Terms of Trade
AbstractWe examine two important aspects of Australia’s terms of trade using 135 years of annual data up to 2003/04. Since Australia predominantly exports commodities and imports manufactures, the Prebisch-Singer hypothesis suggests that there should be a negative trend in the terms of trade. But the trend is no more than –0.1 per cent per annum, less than the trend decline in world commodity prices relative to manufactured goods prices. The weaker trend appears to be the result of Australia exporting, and importantly diversifying toward, commodities with faster price growth. Extending the sample using projections for the terms of trade for the two years to 2005/06 based on commodity price movements to date, the apparent downward trend disappears. Indeed, based on these projections, the terms of trade will have increased by around 50 per cent over the period 1987–2006, unwinding the decline over the preceding 30 years. We also investigate the volatility of the terms of trade and demonstrate that it was significantly higher between 1923 and 1952. This is attributable to substantially higher volatility in the export prices of a few key commodity exports. Volatility declined after 1952 due to smaller shocks to the prices of these goods. The diversification in Australia’s export base since then means that the terms of trade are less susceptible to shocks to prices of individual commodity exports.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Reserve Bank of Australia in its series RBA Research Discussion Papers with number rdp2005-01.
Date of creation: Apr 2005
Date of revision:
Find related papers by JEL classification:
- E01 - Macroeconomics and Monetary Economics - - General - - - Measurement and Data on National Income and Product Accounts and Wealth; Environmental Accounts
- E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
- F10 - International Economics - - Trade - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-04-30 (All new papers)
- NEP-INT-2005-04-30 (International Trade)
- NEP-MAC-2005-04-30 (Macroeconomics)
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- A.F.M. Kamrul Hassan & Ruhul A. Salim, 2011. "Is there any Link Between Commodity Price and Monetary Policy? Evidence from Australia," Economic Analysis and Policy (EAP), Queensland University of Technology (QUT), School of Economics and Finance, vol. 41(3), pages 205-216, December.
- Ellis Connolly & David Orsmond, 2011. "The Mining Industry: From Bust to Boom," RBA Research Discussion Papers rdp2011-08, Reserve Bank of Australia.
- Vanessa Rayner & James Bishop, 2013. "Industry Dimensions of the Resource Boom: An Input-Output Analysis," RBA Research Discussion Papers rdp2013-02, Reserve Bank of Australia.
- Ellis Connolly & David Orsmond, 2011. "The Mining Industry: From Bust to Boom," RBA Annual Conference Volume, in: Hugo Gerard & Jonathan Kearns (ed.), The Australian Economy in the 2000s Reserve Bank of Australia.
- Jarkko Jääskelä & Penelope Smith, 2011. "Terms of Trade Shocks: What are They and What Do They Do?," RBA Research Discussion Papers rdp2011-05, Reserve Bank of Australia.
- Ian W. McLean, 2010. "Responding to Shocks: Australia's Institutions and Policies," School of Economics Working Papers 2010-30, University of Adelaide, School of Economics.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Paula Drew).
If references are entirely missing, you can add them using this form.