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Explaining the Recent Performance of Australia’s Manufactured Exports

Author

Listed:
  • Gordon Menzies

    (Reserve Bank of Australia)

  • Geoffrey Heenan

    (Reserve Bank of Australia)

Abstract

Australia’s manufactured exports have grown rapidly since the mid-1980s. The growth of Australia’s trading partners and the overall depreciation of the exchange rate, while important, do not fully explain this growth. This paper seeks to explain the remaining growth in reference to firms’ cost structures, in particular their sunk cost structures. A model is developed. It shows how, in the presence of sunk costs, a shock to the economy can cause a permanent increase in the level of exports. This model is applied to Australia’s manufactured exports. The results suggest that their recent growth may not be undone, even if the recent economic shocks faced by exporters are reversed.

Suggested Citation

  • Gordon Menzies & Geoffrey Heenan, 1993. "Explaining the Recent Performance of Australia’s Manufactured Exports," RBA Research Discussion Papers rdp9310, Reserve Bank of Australia.
  • Handle: RePEc:rba:rbardp:rdp9310
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    File URL: http://www.rba.gov.au/publications/rdp/1993/pdf/rdp9310.pdf
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    References listed on IDEAS

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    1. Richard Baldwin & Paul Krugman, 1989. "Persistent Trade Effects of Large Exchange Rate Shocks," The Quarterly Journal of Economics, Oxford University Press, vol. 104(4), pages 635-654.
    2. Dixit, Avinash K, 1989. "Entry and Exit Decisions under Uncertainty," Journal of Political Economy, University of Chicago Press, vol. 97(3), pages 620-638, June.
    3. Baldwin, Richard, 1988. "Hyteresis in Import Prices: The Beachhead Effect," American Economic Review, American Economic Association, vol. 78(4), pages 773-785, September.
    4. Matthew T. Jones & Jenny Wilkinson, 1990. "Real Exchange Rates and Australian Export Competitiveness," RBA Research Discussion Papers rdp9005, Reserve Bank of Australia.
    5. Goldstein, Morris & Khan, Mohsin S, 1978. "The Supply and Demand for Exports: A Simultaneous Approach," The Review of Economics and Statistics, MIT Press, vol. 60(2), pages 275-286, May.
    6. John Pitchford, 1993. "The Exchange Rate and Macroeconomic Policy in Australia," RBA Annual Conference Volume,in: Adrian Blundell-Wignall (ed.), The Exchange Rate, International Trade and the Balance of Payments Reserve Bank of Australia.
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    Cited by:

    1. Peter Drysdale & Weiguo Lu, 1996. "Australia's Export Performance in East Asia," Asia Pacific Economic Papers 259, Australia-Japan Research Centre, Crawford School of Public Policy, The Australian National University.
    2. de Roos, Nicolas & Russell, Bill, 2002. "The Exports Transmission Mechanism of Foreign Business Cycles to Australia," The Economic Record, The Economic Society of Australia, pages 50-59.
    3. Andrew Marks & Mehdi Sadeghi, 1998. "Testing the Olson Hypothesis within the Australian Context," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 31(2), pages 130-144.
    4. Craig Beaumont & Li Cui, 2007. "Conquering Fear of Floating; Australia's Successful Adaptation to a Flexible Exchange Rate," IMF Policy Discussion Papers 07/2, International Monetary Fund.
    5. Michele Bullock & Stephen Grenville & Geoffrey Heenan, 1993. "The Exchange Rate and the Current Account," RBA Annual Conference Volume,in: Adrian Blundell-Wignall (ed.), The Exchange Rate, International Trade and the Balance of Payments Reserve Bank of Australia.
    6. Pope, Robin, 1999. "Local Manufacturing Hurt by Depreciations in a Theoretical Model Reflecting the Australian Experience," Discussion Paper Serie B 450, University of Bonn, Germany.
    7. Gordon Menzies, 1994. "Explaining the Timing of Australia's Manufactured Export Boom," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 27(4), pages 72-86.
    8. Ellis W. Tallman & Naveen Chandra, 1996. "The information content of financial aggregates in Australia," FRB Atlanta Working Paper 96-14, Federal Reserve Bank of Atlanta.

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