Issues and Trends in
the Balance of
Payments

1. The structure of
Australia’s export base
• Australia’s export base includes all of the
products that Australia produces for export
• Australia’s export base has a significant
impact on the inflow of funds on the current
account
• Australia’s export base is heavily weighted
towards primary products, commodities etc

The structure of Australia’s
export base
• This is often termed a “narrow” export base
because we are relying on a few products
for export $$
• a “narrow” export base is not good for the
CAD as we are exposed to large fluctuations
in commodity prices
• Despite the fact that this has been
increasingly seen as a problem for Australia,
exports have been become more heavily
focused on these products

The structure of Australia’s
export base
• Concern is also sometimes raised that
Australia does not have an adequate IT
sector or manufacturing sector and this
means that we are two reliant on imports
(meaning a higher CAD)
• many economists suggest that Australia
needs to broaden its “export base” by
producing more manufactured goods and
exporting many more services

2. International
competitiveness
• If Australia is not competitive on an
international scale, it will be very difficult to
improve trade performance
• Australian exports have typically not been
very competitive on an international level
• Improving the international competitiveness
of Australian businesses ultimately depends
upon paying attention to specific industries
and their performance

3. Structural Change
• Microeconomic reform policies are those
government policies which aim to improve the
efficiency and productivity of producers
within individual industries
• Australian governments have implemented
extensive microeconomic reforms over the
past 20 years in an attempt to broaden our
“export base”
• these reforms have attempted to address
structual factors which affect our

Structural Change
• These microeconomic reforms have attempted
to address structural factors which affect
our international competitiveness such as:
• inflation
• wages growth
• productivity levels
• efficiency of the public sector

4. Terms of Trade
• The Terms of Trade shows the relationship
between the prices that Australia receives
for its exports and the prices that it pays
for its imports
TERMS OF EXPORT PRICE INDEX
= x 100/1
TRADE IMPORT PRICE INDEX

Terms of Trade
• E.g. if export prices are increasing relative
to import prices then Australia’s terms of
trade will improve
• On the other hand, if import prices are
increasing relative to export prices then
Australia’s terms of trade will deteriorate
• Australia’s narrow export base has been a
consistent problem for Australia’s Terms of
Trade in recent years