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Internationalisation and Pricing Behaviour: Some Evidence for Australia

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  • James O’Regan

    (Reserve Bank of Australia)

  • Jenny Wilkinson

    (Reserve Bank of Australia)

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    Abstract

    Standard trade theory suggests that internationalisation of an economy should lead to increased competitive pressures and an improvement in the efficiency with which domestic goods are produced and priced. We examine a number of ways in which the pricing behaviour of the Australian manufacturing industry has changed over the past couple of decades, and relate this to the substantial opening up of the economy which has occurred. Using disaggregated industry-level data, we find evidence that, when measured in the same currency, prices of Australian-produced goods have fallen relative to foreign-produced goods in many of Australia’s manufacturing industries. We attribute this, in part, to increased international competition driving inefficient domestic producers from the market. We also find, not surprisingly, that domestic price setters tend to be more sensitive to changes in foreign prices in the traded sector than in the non-traded sector, and that the more open the industry the higher the sensitivity to foreign prices.

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    Bibliographic Info

    Paper provided by Reserve Bank of Australia in its series RBA Research Discussion Papers with number rdp9707.

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    Date of creation: Oct 1997
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    Handle: RePEc:rba:rbardp:rdp9707

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    1. Harry Bloch, 1996. "Changes in the International Competitiveness of Australian Manufacturing: 1968 to 1989," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 29(3), pages 308-319.
    2. James Levinsohn, 1991. "Testing the Imports-as-Market-Discipline Hypothesis," NBER Working Papers 3657, National Bureau of Economic Research, Inc.
    3. Robert E. Hall, 1986. "The Relation Between Price and Marginal Cost in U.S. Industry," NBER Working Papers 1785, National Bureau of Economic Research, Inc.
    4. Dwyer, Jacqueline, 1992. "The Tradeable Non-tradeable Dichotomy: A Practical Approach," Australian Economic Papers, Wiley Blackwell, vol. 31(59), pages 443-59, December.
    5. Harry Bloch, 1974. "Prices, Costs, and Profits in Canadian Manufacturing: The Influence of Tariffs and Concentration," Canadian Journal of Economics, Canadian Economics Association, vol. 7(4), pages 594-610, November.
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