International Trade Competitiveness, Protection and Australian Manufactures*

International Trade Competitiveness, Protection and Australian Manufactures*

151 Economic Analysis and Policy Vol. 23 No. 02, September 1993 INTERNATIONAL TRADE COMPETITIVENESS, PROTECTION AND AUSTRALIAN MANUFACTURES· Peter...

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151

Economic Analysis and Policy

Vol. 23 No. 02, September 1993

INTERNATIONAL TRADE COMPETITIVENESS, PROTECTION AND AUSTRALIAN MANUFACTURES·

Peter Daniels Faculty oJ Environmental Science Griffith University Nathan. Q 41 II

Australia's weak trade perfonnance in manufacturing is often seen to be a significant contributor to the nation's balance of paymenL" a.nd external debt difficulties. The paper develops and applies a simple methodology for assessing trade competiti veness at a disaggrcgated industry level. The unique aspect of the approach is the attempt at incorporating existing levels, and changes in, trade performance and protection, and likely future growth in market demand. The findings provide some evidence which throws doubt on the assumption thai reduced protection in manufacturing will be a substantial force in attaining thedesired longer-term trade compcliti veness objecti ves ofAustralian industry policy. 'Ine observed relationship between changes in protection and trade is weak and ambiguous at best.lbere has also been no sustained improvement in lrade performance in manufacturing, total merchandise, or goods and services overall, since the early 1970s. Furthermore, the industry groups with high competitive advantage potential in the 1970s have not benefited from the structural readjustment accompanying reduced protection.

1.

INTRODUCTION

1.1 International Competitiveness and Australian Industry Policy Amidst the recessionary conditions of the past three years, Auslralia has experienced some improvement in ils !radc and currcnt accounl balanccs. Howevcr, longer-tenn developments in the inlernalional competitiveness of manufacturing remain as ccntral concerns of indusuy, science and lechnology, and general macroeconomic policy, Some may claim Ulat manufacturing trade perfonnance is not of vital imporlance given Australia's inherenl national comparative advantage in nalural resources. Nonetheless, during the 1980s trade surpluses in resource sectors (notably in mining) did not offset the deepening structural trade deficit in manufaclures which, in synergy with growing net interest paymenls overseas, fuelled the ~ubstanliaI growth in current accoulll deficils and related net external debt levels. This close relationship belween movements in the currenlaccount, and the trade balance in manufactures, is graphically



This article is a revised version of a paper presented at the 1992 Economic Society of Australia Annual Conference conducted at the University of Melhourne.

152

BALANCE ON AUSTRALIA'S CURRENT ACCOUNT AND TRADE IN MANUFACTURES %GDP 2r

1968-69_1~ 1991-~~

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Financial Year Ending -8-. Manuf. Trade Balance

- - Current Account

Sour«: Australian Bureau of Statistics, Cat. Nos. 5303.0, and 5424.0 (various issues)

Vol. 23 No. 02, September 1993

-4

Economic Analysis and Policy

FIGUREl

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portrayed in Figure 1. Despite the proclaimed strong growth in manufaclured exports in the latter half of the decade there was a marked deterioralion in Australia's trade balance, in this sector, throughout the 1980s. The longer-tenn implications of Australia's large currellt account deficit levels are a moot point- trade deficits in manufaclueing may well represent the importation of capital for investment activilies wilh longer-tenn net economic benefits. However, there is someconsensus regarding the desirability ofan eventual, suslai ned improvement in trade in manufactures. lOver the past decade there has been a host of government iniliatives intended to contribute to the development of imernational compelitiveness in Ausualian manufacturing. Theemphasis on manufacturing activities appears to be premised on the high income elasticity and growth in demand of the sector's output visa-vis that of the nation's uaditional export sectors. Policy initiatives have included both selective and non-selective 'interventionist' dimensions where govenunent has acted in an attempt to rectify a perceived market failure. Examples include the 125-150 per cent research and development (R&D) expenditure tax concession, establishment of AUSTRADE and its various export promotion schemes (such as the Export Market Developmem Grants [FMDG] scheme and International Trade Enhancement Scheme [INTESD, and the sectoral assistance plans. However, over the past twenty years industry policy has become increasingly dominated by aspirit ofderegulation or microeconomic refonn based on the assumption thaI free market conditions promise !he best Slimulus and potential for bolstering international competitiveness. The substantial reduction of high and long-standing average rates of nominal and effective industry protection has been a comerstone of Australian industry policy. This primacy attributed to reduced protection asadctenninant of future industry competitiveness was clearly demonstrated in Bob Hawke's speech in the March 1991 Statement in which he stated that "the most powerful spur to greater competitiveness is further tariff reductions" (Department of Prime Minister and Cabinet, 1991, p.1.5). If all goes according to plans announced in the March 1991 Statement, me 1990s will see an acceleration in the decline in overall levels of assistance to manufacturing experienced during the past couple of decades. The passenger motor vehicle (PMV) and textile, clothing and footwear (TCJ··) sectors will experience the largest reductions in protection but will retain rates well above a proposed general level of assistance of a maximum of 5 per cent for most of the manufacturing sector by 1996.

1.2 Study Objectives The centrality of reduced protection and the development of international competitiveness in Australian industry policy have guided the two main objectives of this paper. The analysis is primarily empirical in nature and the approach focuses upon trade-based measures of internationaJ competitiveness rather than the relative wage co.."it or productivity measures used in many other studies (for example, see EPAC, See Pitchford (1989a; 1989b; 1990). Makin (1989<1; 1989b), Sjaastad (1989), Moore (1990) and Daniels (1992) for recent dialogue on the consequences of the exceptionally large current account deficits in Australia during the 1980s.

154

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1991 "'?~ DIE, :::93).

compeU~lv~nes.s.

AIth

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b there is no perfect measure of international.

m~U~eboth a main target ofinduslrial policy and provide feo~~I'S abilitY to compete, in Ute various product or industry

a direct mdicauon 0 a n ds . lh global market place.

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• IOfi e ann" of the analysis is the identification of a set of Australian induslry Och appear to have reasonable f uture prospects In the nHematiOIl.al tra dOmg groupsw h I . . f d d f The analysis begins with an exammaUon 0 tra c competitiveness tren S, Or :~;gregated industry gro.ups, over the past fifteen years of general decline in .Ievels of industry assistance. Whale past trade perfonnance trends have beCTI the subJecl of many government and academic studies, the procedure is original in thai the selection process attempts to incorporate and account for (a) different levels and changes in protection over the study period, (b) current relative (fade competitivcness levels and (c) potential growth in Aust.ra.lian and world demand. The analysis is based on data for 138 Australian Slandard Industrial Classification (ASIC) three and four-digit industry groups. The methodology has been forced to includc tlle use of somc arbitrary weighting procedures and is presented only as an exploratory study designed to evoke further discussion, debate and research on !.his highly relevant issue. The design and discussion of findings recognise the limitations associated wilh thc distorting impact lhat differential protection levels and changes can have on observed trade performance as an indicator of actual levels of international competitiveness. The second empirical section ofthe paper investigates onc ofthe major assumptions of industry policy directed toward the enhancement of competitiveness via a general reduction in industry assislance levcls. According to conventional, IlCo·c1assical reasoning the potential competitiveness and welfare gains from reduced protection are seen to resull from removing price distortions on both domestic and imported resources and goods and services, thus allowing free markets to provide lhe most efficient allocation of a nation's scarcc productive factors. As a result reduced protection should shift resources from less productive industries (with limited real competitiveness) to industries with greater potential comparative or competitive advantage. To provide a preliminary assessment of this assumplion, lhe study examines the trade perfonnance of four major industry groups (classed according to trade competitiveness and protection levels in the mid 1970s). Using a number of lrade indicators, this performance is measured and compared (across the groups) over the period of general decline in protection between 1975 and 1990. Allhough many ot.her influences would be at work, the fundamental premise of current industry assistance policy suggests mat higbly competitive (identified according to trade performance) industries with low protection, at the start. of the study period, should have benefit.ed most from the gradual decline in overall protection levels for manufacturing. The analysis includes an additional 'control' for the possible influence of differential protection trends within these industry groups (due to political lobbying or other reasons) by separating those with reduced protection from those with increased protection over the period. Although it is possible to explore the relationship between protection change and trade perfonnance across individual industry groups, such an approach is fraught with The ICst

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problems in determining the appropriate direction of causality (even given the use of Jags). This is a rcsull of the fact that changing protection levels can be a response to U3de performance as well as a potential detenninant. Hence, this approach bas been avoided in favour of the methodology described above. 1.3 Policy Relevance The dynamic patlem of industry trade competitiveness, and the potential impact of changing industry-specific and general protection levels, are of considerable relevance to industry, trade, and science and technology policies which embrace the need to improve Australia's structural trade imbalance in manufactures. 2 The study's findings provide JXltential contributions to three alternative areas of application. First, theresults generate useful material for tbe
As discussed. the long-term economic desirability of a reduction in trade deficits in manufacturing is a controversial issue. This article does not contribute to this debate but simply accepts more batanced trade in manufactures as a widespread goal of external policies. See Bureau of Industry Economics (1989a) for a recent and detailed study of trade performance in manufactures. It focuses primarily at the two-digit ASIC industrY level and does not consider lhe impact of industry assistance.

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Com arative advanrage becomes a dyn~ic concept - one Of, secondary

~orkforces. til Pntentional development of compellbve advantage (often In apparent Im()()f1ance to e I dan ). contradiction to past relative factor ~b~n .cc. . .

This viewpoint appears 10 be. ~all1mg wldespre~d ac~p~nce as ~ more rcahSI~C 'clion of global trading conditions and dctennillants In Jnlcmattonal econOllllC ~~ry and research (for example, ~efer to the burgeoning literature on strategic and

d

oeo-technology theories of (fade m works such as Cornwall (1977), Spencer and Brander (1983), Tyson and Zysman (1983), Krugman (1987), Spencer (1987), Porter (1990), Dosi, Pavitt and Soe,e (1990), Dosi, Zysman and Tyson (1990), Soe'e (1990), Dosi and Soe'e (1991) and OECD (1991». The assumed efficiency advantages ofunfcuered markets, often seen 10 represent the primary basisof 'economic rationalism' provide the intellectual framework for the bulk of contemporary Auslralian industry policy. However, there is some evidence that federal economic policy, and the objectives of the Industry Conunission (IC) in panicular, are undergoing a subtle but important change in orientation from punst notions of "level playing ficlds" to "positive contributions to industry dcvelopment" or "optimising thecircumstanccs and prospects of specific industries which either had, or wcre about to have. low levels of assistance".s These (Cutative steps toward a 'positive adj ustment' role by the Ie do not comprisc a call for increased protection or subsidisation of selected 'winners' . Rather, it would seem to involve a marked change from the past emphasis on assistance for mature and ailing indusLries in which Australia has low competitive advantage. A central feature is the recognition of lhe important role that governments can have in providing or facilitating co-ordination, infrastructure, the development of s~cific fonos of human capital. R&D incentives and oUler pUblic goods. Most of these government functions are widely accepted as legitimate forms of intervention with considerable potemial to conLribulc 10 increased economic welfare. Hence, government will inevitably have a subslantial impact upon l.hc economic environment which nurlures or inhibils levels of finn productivity and compelitiveness. Nel community economic benefits are more likely to flow from the careful design of such government policy - wilhin a coordinated stralegic framework - rather than on an ad hoc basis or as a reflection of the exisling unequal distribution of social and economic power via the political lobbying process. I

2, INDICATORS OF TRADE COMPETITIVENESS AND PROTECTION The two main parts of the empirical analysis are (a) Ihe identification of Australian industries wilh the best perfonnance in lerms of change in trade compelitiveness



Profound and rapid structural transformation and growth in international competitiveness in tecbnologically-sophislicated induslries in many South and East Asian economies are frequently cited as compelling evidence of the dynamic nature of, and ability to 'create', comparative advantage. These quotes are taken from an article by Julie Power in the Financial Review dated May 13. 1992 discussing the appointment of Dill Sales to chiefexecutive oftheIC and comments by the Treasurer, John Dawkins, on the changing approach of the Commission.

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(taking into consideration world and Australian growlh in demand, and levels and changes in effective protection rates), and (b) an examination of the observed trends in industry trade perfonnance(c1assified by 'competitiveness'leveis in lhemid 1970s) during the past fifteen years of decline in general industry prolection levels. The identification of industry groups which have fared most favourably with respect to international trading competitiveness seems, at first, a ralher simple and straightforward process. However, a reliable comparison is plagued by a number of fonnidable problems. One major limitation is the fact that there is no ideal measure of international competitiveness in trade. 6 A numberofrecem studies have focused upon international, intra-sectoral trade perfonnance (for example, Dosi, Pavill and Soete, 1990) have espoused the virtues of measures based on change in national shares of world export markels. Unfortunately, lhis measure tends 10 neglect changes in the absolule size of trade in individual product or industry groups and would be very difficult 10 derive given the ASIC-based presentation of industry assistance data. II is generally acknowledged that measures based solely upon growth in export values neglect changes in tradcability and the composition of domeslic demand and hence reveal littleabout actual national competitiveness in themarkel sectorconcemcd (Hughes, 1986), Two of the most popular trade competitiveness measures utilised in recent times are (a) the ratio of trade balance to domestic sales (or consumption) (XMSALES) (Bowen, 1983, 1986; Engelbrechl, 1989» and (b) the nel Irade ratio (NTR) (equal 10 the trade balance divided by the sum of both exports and imports) (Panic and Joyce, 1980). However, these indicalors also have their weaknesses. For example, country·specific variations in the size of domestic sales (which stem from many different sources) can distort theXMSALES measure and low tradeabil.ity can affect the NTR. Dynamic measures of trade based on change in net trade ratios do not account for the existing, or change in, absolute size of the industry sector and have some undesirable statistical properties.1 Despite these problems, NTR and trade balance to sales ratios are both utilised in the analysis, The ratio of trade balance to domestic sales (XMSALES) provides the central variable of focus and provides the basis for the dynamic measure used in the inilial ranking of Australian industries according to trade pcrfonnanc~ over tile 1975 10 1990 period. In addition to Ole aforementioned difficulties in finding appropriate measures of trade competitiveness, indicators based all trade balances will be distorled by levels and changes in protection (Balassa, 1977). This is a critical issue because current industry



,

See DIE (1989a) for the use of the ratio of domestic to import prices as a measure of international competitiveness in manufactures. Appropriate data were not available at the level of disaggregation adopted here. Dynamic measures based on net trade ratios (NTR) tend to underestimate change in trade performance when trade imbalances are substantial in the initial period, and trade values increase significantly on the larger trade measure (that is, export or import value) over the study period. This effect is a result of the moderating innuencc of the resulting innated values in the denominator of the NTR equation.

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policy reflects the asswnption that industry assistance has been a very powerful influcnce on Australia's (lack of) international competitiveness in mrulUfactures. The isolation of the unique impact of changc in levels of industry assislance upon Australian manufacturing trade pcrfonnance is a major goal of this study. Hence, the analysis has incllKlcd consideration of current protection levels, and change in protection levels over the study period, in Ule assessment of the competitive strenglh of Ule primary study group of 58 industries. This initial sclection of industries was drawn from those eXhibiting the best improvements in tradc performance (according XMSALES) over the 1975 to 1990 period' The confounding influence of variations in protection levels on observed change in trade perfonnance must be recognised. Higher levels of protection should lead to shon·tenn improvements in trade b..l.Iance·based measures ofcompetitivcness. AJtllOugh Ule study takes a long-tenn perspective, (Uld involves a lag ofarollnd two 10 Ulree years between chrulge in protection and change in trade, therc is a strong possibility of simultaneity bias and difficulty in isolating Ule effects of protection from trade, given the likelihood lhat protection has been incrementally lifted in responsc.lO deterioraling trade pcrfonnance in less competitive industries. Nevertheless, in tlle absence of a supcrioraltemati ve methodology, the relativcextcnt of protection and change in levels of protection arc taken into consideration by presclHing and comparing their relevanl values for Ule 58 industries with the best changes in trade perfonnancc (Table I). One of the oUler major influences upon the longer-lenn trade bencfits associated with specific industries is likely to be growth in domestic and global market sales. Competitive slrengUl in shrinking markel sectors is not necessarily good news for trade in mrulUfacturing overall. Thereforc, the measures of growth in Ihe value of world export sales between 1978 and 1988 and domestic s..l.Ies between 1975 and 1989 (as an additional proxy of demand growth) have been included in Ule assessment of industry dynamism and potential expansion of markCIS. Ofcourse, thecxtrapolation of paSt trends ignores lhe highly dynrunic nature of Ule structure of world demand and potential 10ngcNcnn opportunities and developments. 9 However, in tllC absence of detailed forecasting studies of changes in demand, trends observed over Ule past have been utilised. Finally, changes in the value of world cxpons rcvcallitUe about price changes, world production capacity levels and other inOuences upon the potential gains from trade to be re.1pcd in individual industry groups.IO

'0

However, protection levels have only hcen considered after the preliminary selection of the induslries according to trade performance measured by the ratio of the trade balance to domestic sales. As a result, industries with large reductions in protection, and low levels of protection, may have 1>«0 unfairly excluded from the initial selection on the grounds of their weaker trade performance alone. For example, tile likely strong future growth in goods based on environmental technologies or with environmenlally-friendly characteristics .



However, high levels of growth in world demand have been concentrated in technologyinlensive manufacturing sectors and there is evidence of a clear link between national trade performance in technology-intensive manufactures and growth in GNP per capita levels over the 19805 (see Daniels, t 993).

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Appendix I provides a swnmary of the main indicators used in the identification of trade competitive Australian industries on the basis of variation in protection and trends in demand. The general approach taken to assess competitive strength and fUlure prospects commenced with the selection of the top 58 industries (of 138 in the sample) according to rue ranking on change in the ratio of the trade balance todomestic sales between 1975 and 1990." Thesecondstep involved the classification ofindustry values on each of the selected 'key' competitiveness influences into quartile ranges labeUed one (I) to four (4) where a value of 4 represents the condition which is given to be most favourable in tenns of competitive advantage. Theassumed primary influences upon competitive advantage or potential include (a) existing trade competitiveness (NTR89), (b) existing effective rate of protec'ioll (ERP89), (c) change in effective protection 1973 to 1986 (ERPCH), (d)

Australian domestic sales growth 1975 to 1989 and (e) growth in the value of world exports between 1978 and 1988. Hence, a value of 4 on the variable NTR.89 would indicate that the industry had a net uade ratio value within the range of the top (or most competitive) 25 percent of industries. Finally, the quartile values of the five influences wecc swnrned, asswning an equal weighting for each factor, to yield a competitiveness 'score' for each industry within the initial set of 58 industries. 11 The footnote in Table 1 provides further details on Lhe procedures used. A number of other potential influences, such as R&D intensity and concentration levels, have also been briefly considered in the analysis of individual induslry trade competitiveness. The trade and protection indicators used in the second empirical section focused upon trade perfonnance trends for broader industry groups, classed according to their midw 1970s levels of trade competitiveness and protection. The latter section includes a comparison oftIends in protection and lrade performance (since 1969) for a number of selectcd, two and three..
"

The selection of 58 industries appears arbitrary but is the result of the selection process using a number of exclusion criteria. lbc procedure commcnced with an initial selection of the top 40 industries according 10 the change in XMSALES trade measure. This set included both tradeable and non-tradeable industries. 'Ibis initial group was extended by including a number of other industries (from the remaining top part of Ihe change in XMSALES ranking) given that they (a) were tradeable industries (defined, according to the conventional definition, as those with either import penetration ratios or export propensities over 10 per cent) and (b) had change in XMSALES ratios of greater than 10 percentage points. Hence the group actually includes industries that experienced deterioration in trade perfonnance.

"

It is important that tbis arbitrary procedure of swnming scores implies thai each factor has an equal impact on Iradecompetitiveness and potential. Of course, this is a bold assumption and differcnt weightings may give quite different results. However, in the abscnce of additional infonnation on the structural relationships betwecn the innuences and trade competitiveness, it is necessary to acknowledge the limitations of this mcthodology and presume that the combined score wiU at least give a general idea of the nature of influences related to specific industry groups.

160

TRADE COMPETITIVENESS ANALYSIS RESULTS'

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Vol. 23 No. 02, September 1993

2151

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TABLE 1

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1be list.shows the lop 58 industries ranked bythechange in indusuy lradebalaoce. as a peIeentof domestic pies, belwccn1974 and 1990(XMSALCH). NOD-tradeable industrie.o; with valuC.$ le.s.s than that roc ASIC 214 have been omitted. FOI" usc of eomparisoo, 1.11 variables have been grouped into quartiles and ascribed a value of betWCCll 1 and 4 where the higher value implic.s the iDdllStry has • flvOllI1lblecompc:litivcoess ratiDg on the orig:inal variable. NOlc, hOwevCf, that the uadeability aod pertCl:l1 oflotal change in domestic .sales measures (coluams I and 2) have Dot bccn traIlsformcd in this way. DctaiIs ;uc showII below: 1. TRADEABn.ITY 19S6 _Trad~b1e good (Either CJlportpropcwity 0( imponpenetratioD valuu > 10 pct"Celll) 3. AUSlRALlAN R&D INI'ENSITY 1986(Research&developmeatexpenditure as ~ta&e ofvaluo-addcd), 4 = Highe.st 2.S pc:I"CCl'It R&D intewity,l =lawest 25 per celIt R&D inlCl1$ity 4. NET TRADE RATIO «Eltporu-Imports)l(Exporu+lmporU» 4." HighcslDeI trade ratio, 1 • Lowest nel trade ratio 5. GROWIH IN TOTAL WORlD EXPORTS IN INDUSTRY CI.ASS (E",ports 1988/Exporu 1978),4 .. Highest growth, I _Lowest growth 6. AUSTRALIAN OOMESTIC SALES GROWIH (Domeatic saIc& 1989 f Domestic ~ 1975) 4. Highest growth I .. Loweat growth 7. AVERAGE EFFECIlVE RATE OF PROTECIlON (pcttc:rltagcl989), 4 = Lowes! rate of protcctioa. I .. Highest rate of PfOk:Cbon 8. OiANGE IN A VERAGEEFFEcnVERATEOFPR0TECT10N 1975-86, 4 =Larteat ~l.i0ll in prorClCtiOD, 1 = Lugesl increase in protcaiOll Sources: IAC (1985): IC Annual Reports (various ye.$): ASS Cal No. 8112.0 (1986-87); Unilc
Vol. 23 No. 02, September 1993

"31

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Economic Analysis and Policy

2753 2751 2942

Wooden doors

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A number of additional limitations of Ule overall analysis result trom Ule approach adopted. They relate 10: the use of industry level dala rather than specific firm case sludies; the exclusion of a number of industries (around 20) due to lack of data; • the rates of protection have been re-based a number of limes and are not stricUy comparable across the sludy period; and the many other faclors which are likely to innuence the existing and future competilive slrength of specific induslries (for example, non-neulral effects of exchange rate nucluations).

3.

INTERNATIONALLY COMPETITIVE INDUSTRIES

The application of the procedure for identifying competitive Auslralian induSlries (described in the previous section) yields the results presented in Table I. However, it is the nalure of the approach Iaken which is probably of greater potential value than the specific slatistics shown in the lable. Nonetheless, the results are still worthy of some discussion. Table I shows the 58 lop-ranking indUSlries according to change in trade competitiveness belween 1975 and 1990. The indUSlries are listed in descending order on the basis of this variable. The table also indicates whether or not Ule product of Ihe respective induslry is Iradeable, the percentage contribution of Ule industry to t01a1 growth in domestic manufacluring sales, and Auslralian R&D intensity, along wilh Ihe five key competitiveness variables discussed earlier. It is interesting to note that the majorily of Ihe indUSlries with significant improvemenls in Irade have relatively high R&D intensities. While lechnological capability is undoubtedly a key dctenninant of international competiliveness in many induslry groups, the finding docs run counter to the conventional assumption Ulat Auslralia's Irade prospects and advanlages are limited to simply-Iransfonned and lowtechnology produclion. IJ Tradeable induslry groups wilh tolal compelitiveness 'scores' (in column 9) greater than 12 are shown in bold font within Ihe table." These 20 induslry groups represent the best overall performers on the five variables assumed as important innuences on competitiveness. However, il is nOled that very few industries have

values in the top quartile onlhe majority of these five variables. For example, ASIC 2152 (slarch, gluten and sugars) has one of the highcsttolal score values (at 18) but has experienced very limited absolute growth in sales since 1975. Due to their low, or negative, contributions to total AUSlralian salcs growth, Ulfce groups have been excluded from the list of 20 industry groups identified as most competitive. The result is a suggestive list of 17 AUSlralian induslries facing the best

"

Australia's huge trade imhalance in manufactures is largely the result of deficits in technology-intensive manufactures. In 1989·90 the trade deficit in technology-intensive manufactures (6.7 perccntofGDP) was greater Ulan the manufacturing tradedcficitoverall (5.6 per cent ofGDP) (Daniels (t 992)). Engelbrecht's (1992) study suggests that Australia has a comparative disadvantage in technology-intensive manufactures.

"

This score was calculated simply by swnming !.he quartile values for the five key competitiveness indicators.

163

TABLE 2

Industry

Not Ratio

World

Aust. Sales

Effect.

Export

1989

Growth

G"wth

Rate Proln 1989

295 2174 3244 2961 3487

2646 2850 2753 3341

2132 3343 2120 2631 2763 2173

l.

0.97 0.25 Processed seafoods Aircraft -0.56 Aluminium rolling drawing eXlnJding 0.31 Manufacturing nOl elsewhere -0.81 classified (nee) 0.10 Leather tanning &. fur dressng

Ships &. boats Prioting &. allied DeC Glass &. glass products Synthetic resins &. robbe-.r Ph
-0.38 -0.67 -0.71 -0.58 -0.53 -0.52 -0.56 0.72 -0.86 -0.52 -0.43

4 2 3 4

1 4 4 4

-4 I 2 49

3 3 1 3 3 4 4 I

4 4 4 4 3 4 4 2

15 27 24 8 3 36 7 7

4 I 4

4 2 4 4 3

10 -11 20 2 24

3 2

Sec Appendix 1 and Table 1 for variable definitions.

AU$l R&D Intensity

-12

4

3

3 3 3

-20 -29

-32

R&D Intensity

2 2 4 2

1

3 1 2 1 2 3 3 2

-I

4

4

-21 5 -34 -52

3 2 4

2 1 4 2

-II -42 -28 -7 13 -5 -24

3 3 3 1

OECD

3 4 4

3

Technology G,p

ConeenIt'atiOll

Ratio (%)

2 4 4 2

50 56 72 76

4 4 4

28 29 55

3 3 2 I 4 I 4 3 1 4

76 43 56 30 34 24

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3451 3241

Basic non-ferrous metals

Effect. Proln Change 1973-86

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FINAL LIST OF INDUSTRIES PERFORMING WELL ON INTERNATIONAL COMPETITIVENESS ASSESSMENT'

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prospects for competitive advantage (see Table 2). However, on further inspection, the rapidly diminishing set of industries still COnlains many problem cases. There are only four groups, namely those eovering nonferrous metals (295 and 2161), processed seafoods (2174) and leaU,er processing (3451), which have good ratings on all of the competitiveness indicators. In general, these four indusUies also have fairly high R&D inlensities, low technology gaps (between Australia and the small DECO nation average) and high trade-adjusted concentration levels. A number of theorists argue that these characteristics are favourable for potential growth in international eompetitiveness (for example, see Nelson, 1984 and Spencer, 1987). However, with the exception of milk products, all of the industries shown under ASIC 2753 (synthetie resins and rubber) in Table 2 have poor net trade ratios (trade competitiveness during 1988 to 1990) and all have suffered slight deterioratioll in trade perfonnanee (according to XMSALCH) sinee 1975 15 Hence, Ulis group of indusUies represents the 'best of a bad bunch' and it would be very optimistic to conclude that they are likely to experience future gains in trade perfonnance. With Ule exception of the four industries identified above (ASIC groups 295, 2174,2961 and 3451) most of the other groups enjoying improved trade perfonnance during the past 15 years still have rather weak trade competitiveness levels. For example, manufacturing 'not elsewhere classified' (nee) has a 1989-90 net trade ratio of less than minus 0.8. Furthennore, two have relatively high current protection levels (for example, ASICs 296\ and 2753) and one (ASIC 2753) has received increased protection, a situation which tends to offset its implied 'competitive' statns. In sWllmary,theapproaeh adopted offers a useful means for assessing potential trade competitiveness given differential protection levels and change in demand.llleapplication reviewed here is only intended to beexploratory in natnre. However, it does suggest Ulal, in view ofexisting levels and past trends in trade competitiveness, protection and demand growth, only a small subset of the 138 indusUies examined demonstrate the capacity for favourable longer-tenn trade developments under current policy directions. 4.

CHANGE IN PROTECTION AND MANUFACTURING TRADE PERFORMANCE

Average effective rates of assistance to Anstralian manufacturing have declined steadily, from aronnd 36 per cellt in 1973 to around 15 per cent in 1991. However, it is important to recognise that this gradnal reduction is not the product of U,e consistent application of govenunent policy designed to withdraw tariff and oU,er forms of assistance from Australiall manufacturing industry. The current progflUllme of tariff cuts commenced as recenUy as 1988. The only other comprehensive tariff rednction plan was the 25 per cent across· the-board cut initiated in July of 1973. The gradual decline between the mid 1970s and mid 1980s reOects the combined inOuence of U,e 25 per cent cut, specific and isolated decisions by governments acting on the fonner

"

By definition. the minimum value for the net trade ratio is ·1 (that is, if there arc no exports and only imporlS). As discussed,lllost Australian manufacturing industries have very low net trade ratios and these groups are generally well-ranked within the total set of industries.

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Industry Assistance Commission's inquiries, and also the important effect of changes in the relative significance of highly-assisted industries in total manufacturing. This last influence has occurred as the resull of many factors including changes in income, demand, and technology. Given this overarching limitation, this section attempts a preliminary investigation of some relevant aspects of the impact of reduced overall protection on trade performance in Australian manufacturing. A central assumption of current industry policy is that a reduction in overall protection levels will facilitate the movement ofresources from less productive industries with weak levels of real competitiveness, to dIOse with greater potential competitive advantage. The additional impact of lower input prices and favourable exchange rate effects should lead 'naturally' competitive industries to grealerproductivityand expansion in exports (and hence, improved trade balances) and output overall. An ideal resull of this process would be an improvement in trade performance for manufacturing as a whole. However, the reallocation of resources is not confined to manufacturing alone comparative disadvantage in manufacturing could cause Australian labour and capila! to shift out ofmanufacturing altogether and into resource-based and service sectors, with similar, beneficial effects on productivity and competitiveness. Broad indicators do not suggest that Australian manufacturing has achieved the desired policy goals of higher relative levels of international competitiveness with the general decline in average rates of effective assistance since the early 1970s. Wid, d,e exception of the early 1990s, trends in the ratio of the trade balance to sales suggest that the manufacturing sector's trade performance actually deteriorated duoughoutmost ofthis time. Typically, trade deficits in manufacturing, as a percent ofrapidly-growing domestic sales in manufactures, increased from around 6 per celli in the early 1970s to 9 to 10 per cent in the late 1980s and early 1990s. Improvements observed during the 1990s must be viewed with some doubt as this period has been marked by high unemployment, stagnanl demand and import growth, and increases in exports which may be largely the resull of excess domestic production being redirected overseas." Furthermore, Australia's overall trade performance in sectors odlCr than manufacturing has remained essentially unchanged during the past two decades. With the exception of comparatively low trade balances hctween 1981 and 1983, the trade surplus for dIe comhined agricullure, mining and service industries has remained close to 3.5 per cent of GDP since 1977-78 17 This observation does not support the

"

On the other hand, the deteriorating trade balance could be attributed to 'excessive' rates of growth in domestic demand during the 19808 rather than an inherent decline in competitiveness. However, the period is of sufficient duration to be indicative of structural change.

17

Unfortunately, lack of data for the service sector has prevented the derivation of trade measures based on the ratio of trade balances to domestic sales. Trade balance levels (relative 10 GDP) have been used as suitable proxies for the examination of trade performance in the highly aggregated, non-manufacturing sectors. It should also be noted that potentiallrade competitiveness and demand improvements could have been offset by sluggish world growth. However, a number of commentatoJs believe that growth rates since the 1980s are fairly typical of long-term averages after an exceptional period of economic growth in the 19505 and 19605 (OEeD, 1991).

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proposition that economic resources relea<;ed from protected, uncompetitive sectors have been absorbed into primary and servicc scctor activity, leading to growth in output, competitiveness and gains from trade. It is true that plans for reduced industry protection have not yet been fully implemented - especially in many of the most highly-assisted sectors. In addition, longer-term developments may sec a fundamental reversal in observed trends in manufacturing or other production sectors" Nonetheless, to date there is little evidence of substantive trade benefits of Australian industry assistance policy at this broad sectoral level. A highly aggregated analysis of this kind provides limited insight into tile specific nature of ti,e links betwecn protection and industry trade perfonnance. Ideally, a more detailed examination of the impact of protection change on trade should focus upon finer industry and fmn levels and evidcnce from case studies. Unfortunately, a firmlevel analysis has been beyond the scope of this study as a survey of an adequate and representative cross-section of Australian industry would have formidable resource requirements. It can also be expected that a static analysis of the association between change in protcction and trade perfonnance, for individual 3 and 4-digit industry groups, will fail to yield any clear-cut relationship overall. Many confounding influcnces will undoubtedly act to diffuse underlying systematic relationships between change in protection and trade performance at this level ofgenerality." Hence, approaches based on correlation between individual disaggregated industry groups were not pursued. This preliminary investigation of the link between trade and protection changc concluded with a different methodology applied in order to assess a slightly different phenomenon, namely variation in the impact of a gradual overall reduction in industry protection upon trade performance across different classes of manufacturing activity. Thcse differelll classes were distinguished according to both tlleir competitiveness and their protection levels at the start of the study period (approximately 1975). TI,C purpose of this analysis was to test one of the major assumptions underlying current industry policy trends, that rednced protection should stimulate growth in trade

"

With some optimism, the occasional improvements in trade since the recession took hold in 1990 may be interpreted as evidence of such a reversal.

"

Accordingly, bivariate statistical analyses do not provide any evidence of a link belween change in protection (1973·86) and subsequent change in trade performance (1975-90) for the 138 ASIC industry groups considered. Note that a lag between the protection and trade measures was used to account for time order effects. The correlation analysis was repeated using many different alternative indicators and approaches, including change in net trade ratios, change in nomirwl rates of protection, the use of a number of different time intervals within the 1975·90 period, and the selection of tradeable industries only, with little change in results. However, the 50 per cent of industries with the most unfavourable changes in trade performance between 1975 and 1990 did have a higher mean level of change in rates of effective proteclion (equal to + 7.0 per cent) than the better trade performers (with 3n average of -10.0 per cent). It is interesting to note that changes in nominal and effective rates of protection are closely related, with a highly significant Pearson IS correlation coefficient of 0.73.

167

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competitiveness in industries wiili 'natural' competitive advantage. Ceteris paribus, it is argued iliat industries wiili low protection and relatively high levels of trade competitiveness during ilie 1970s should have benefited most from ilie less protected domestic environment. On ilie oilier hand, individual industries which had low competitiveness and high protection levels in ilieearly 1970scould be expected tohave suffered substantial deterioration in trade performance, especially iliose experiencing reduced protection. TIle relative changes in trade performance for 84 industries, classified according to their level of protection and competitiveness in ilie 1970s and ilieir change in protection tevels between 1975 and 1990, arc compared in Table 3. Only industries wiili relatively high levels of tradeability, as measured by expons and imports in relation to output or sales, were included. Note iliat the top set of rows on tlle table represents industries wit1l1ow protection and relatively high trade competitiveness in

ilie early 1970s. At first, ilie resulls appear to support tlle notion iliatreduced protection levels have had a positive impact on llJe trade perfonnance of industries iliat had low protection and relatively high net trade ratios. The average change in trade perfonnance for iliese industries willJ high potential trade competitiveness is ilie most favourable in tlle table (iliough it is still negative at -3.5 percent). However, a closer look reveals someserious reservations. First, only around 3 of ilie 23 industries (13 per cent) wiili high competitiveness and low protection levels in ilie 1970s have irnproved tlleir trade performance during ilie period of falling general protection. This is less tllan tlle percentage of industries (26 per cenl) improving their trade performance across tlle manu[aeturing sector overall. Secondly, if ilie basic non-ferrous metals industries (ASIC 295) which have experienced spectacular improvement in trade perfonnance are removed, l..he mean

change in trade performance of tlle 'competitive' industry groups drops to minus II per cent. TIlis is equal to ilie worst trade performance trend on ilie !<1ble, experienced by ilie uneompetitive, highly protected industries o[ tlle early 1970s. We can also observe ilieparadoxical situation whereilie unprotected and competitive industries Witll increased protection levels have fared beller ilian iliose Witll reduced protection. f'urtllermore, boili groups o[ unprotected and competitive induSU'ies perform worse tllan tlle highly protected industries overall. Wiili basic non-ferrous metals excluded, llJe competitive unprotected industries iliat have encountered reduced protection levels have experienced tllC largest declines in trade performance changes of any group, according to measures of boili average trade change and the percentage of industries wiili improved trade perfonnance. The conclusions from this analysis must be interpreted with caution in view orlhe lunitations ofilie approach taken. However, trends in tlle industry groups examined do not auger well [or tllC contention ilia! Australian manufacturing industries wiili a 'natural' comparative advantage will tllrive under an industrial policy in which the major ilimsl for change is founded upon ilie instigation of a less protective trade regime. As a supplement to tllC previous analysis, levels ofprotection and trade performance were traced across all years between 1969 and 1991 [or a number of generally more

168

CHANGING TRADE PERFORMANCE FOR DIFFERENT CLASSES OF INDUSTRY PERFORMANCE INDICATORS

Industry Group Protection and Competitiveness Level in the mid-1970s)1

LOW PROTECTION & HIGH COMPETITIVENESS

HIGHLY-PROTECTED & HIG H COMPETITIVENESS

LOW PROTECTION AND LOW COMPETITIVENESS

HIGHLY-PROTECTED AND LOW COMPETITIVENESS

Average Trade Performance Change for the Group l (1975-1990)

All Industries (23)3 All groups acluding ASIC 295 (22) Those with Increased Protection (1) Those with Decreased Protection (16) Those with Decreased Protection excluding ASIC 295 (15)

-3.5% -11% 0.3% -5.2% -16%

13 9 25 6

All Industries (19) Those with Increased Protection (8) Those with Decreased Protection (II)

-100/0 -9% -10%

26 13 36

All Industries (18) Those with Increased Protection (5) Those with Decreased Protection (13)

-8% -9% -10%

40 46

All Industries (24)

-11%

Those with Increased Protection (13) Those with Decreased Protection (II)

-9% -14%

o

44

29 23 33

1. Competitiveness is measured in terms of observed intemationa1ttade competitiveness (without accounting for differences in protection). 2. Based on the subtraction of the ralios of the trade balance to domestic sales for the end and start of the study period. 3. The number of industry groups in each sub-group is shown in brackets.

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Examples: - processed seafoods - basic non-ferrous metals - wool scouring - pettoleum and coal products - meat, milk, vegetable and fruil products - cereal foods

Change in ProtectiOll (1973 -1986)

Economic Analysis and Policy

TABLEJ

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169

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aggregated industry seclors. The seclors were chosen eiUJer on UJe grounds of (a) UJeir relevance for industry sectoral plans (UJat is, lexliles, cloUJing and footwear, iron and sleel, and molor vehicles), (b) UJeir high trade competitiveness (food, beverages amI tobacco and basic non-ferrous metals) or (c) highly dynamic growUJ in world demand (covering electrical and electronic equipment). The following commenls are based on UJe simple graphs provided in Appendix 2. II is generally anticipaled UJal reduced assistance 10 UJe highly protecled and low trade competitiveness seclors (areas of low competitive advanlage) will lead 10 furUJer declines in trade performance. While selecled niche areas of UJe lex tile, cloUJing and fool wear industry may be enjoying considerable trade success, Australia is Iypically seen to have a low level of advanlage in UJis area of production. However, il is difficull to ascertain UJe impacl of reduced prolection in UJe cloUling, textile and foolwear industries (AS[C groups 23 and 24) as proleclion has lended 10 increase in UJeseseclors since UJe mid-1970s and trade performance, as measured by UJe ratio of lhe trade balance 10 domestic sales, has eiUJer remained conSlanl or improved over UJe same period. Stable or slighI reductions in rales of effective protection since about 1983 do nol appear to bave adversely affecled trade. [n facl, il has improved marginally in U,e cloUJing and fool wear industries. This developmenl may be UJe resull of UJe growing competitiveness of specific industries wiUJin UJe broader 8rouP. However, il still casls some doubl on UJe conventional relalionship assumed belween protection and

competitiveness. During UJe 19805, U,e iron and slecl industry had a general reduction in rales of effeclive prolection. Trade performance also remained well below levels of UJe 1970s, UJough a marked improvement can be observed afler 1989. The motor vehicle industry has been cbaracterised by small bUl consistent growUJ in neltrade ratios aller a severe downlurn following UJe 1973 energy price hikes. Levels of proleclion rose unlil 1985, and then declined wiUJlillle impaci on trade perfonnance Ulfougboul.'o Reasonable trade perfonnances, despile thesubstanlial drop in proleclion since 1985, may indicate lhal sectoral plans for UJis industry (which are nol really compatible wiUJ Ule 'level playing field' ideal) have had a desirable impact on trade compelitiveness. Food, beverage and lobacco (AS[C 21) and basic non-ferrous melals (ASIC 295) are of considerable inleresl in lhe assessmenl of U,e proposition lhat reduced overall proleclion levels should be working in favour of highly compelilive, low proteclion industries (as UJese groups tend to fall inlO UJis calegory). As wiUJ manufacluring overall, bolh seclors have experienced considerable reductions in protection levels since UJe early 19705. Once again, lhe consislent finding of lhis analysis is reaffinned - there do nol seem to be any dislinct regularities in UJe relalionship belween prOlection and trade. Basic ferrous melals have enjoyed suslained growUJ in trade perfonnance while UJe food, beverage and lobacco industry has experienced a gradual delerioration. Overall the resulls of lhis section have been disappointing. There appears to be very lillIe in UJe way of a systemalic relationship belween prolection and trade even when industries are separaled into groups wiUJ similar levels of proleclion and competitiveness (or 'natural', comparaliveadvanlage) orarc examined on an individual 20

This situation tends to reflect the usc of protection to maintain stability in the sector.

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sectoral or induslry basis. It is quite possible that U,e induslry-based analysis has been inadequate, too aggregated, and lacked sufficient depth and coverage of potential influences on competitiveness, despite the use of lags in order to account for the possible confounding influence of trade perfonnance on protection. However, although reduced assistance has not been fully implemented in some key protected sectors, the results suggest that the assumed impact of changes in the level of assistance, upon international competitiveness in manufacturing, may well be over-estimated in induslry policy. 5.

CONCLUSION

The paper bas developed and applied a simple methodology for assessing trade competitiveness at a disaggregated induslry level. The unique aspect of the approach has been theanempt at incorporating existing levels, and changes in, trade perfonnance and protection as well as likely fulure growth in market demand. The process by which a set of 'competitive' industries has been identified must be considered as highly tentative. A more confident analysis would require a far more detailed study which includes field work, a more sophisticated analysis of trends in demand and a wider range of influences on competitiveness. However, the application is proposed as a useful methodology for further development and debate. It has also yielded one particular finding ofconsiderable relevance to induslry pol icy, namely that there appears to be a very limited number of industry groups with good prospects for marked compelitiveness enhancement under a continued prognurune of reduced protection. The other major results relate to the observed impacl of changes in rates of effective protection upon industry trade perfomlance. While there are undoubtedly many other factors at work, Ule period ofgradual, but consistent, reduction in protection since the early 1970s has been accompanied by falling trade competitiveness in the manufacturing sector overall. Of course, the analysis has not been able to identify any direct causal links between protection and trade perfonnance change. However, the study findings suggest that any protectionrelated gains made to date have nol been able to offset the protracted decline in competitiveness in Australian manufacturing. There has also been lillie, if any, apparent impact on observed trade perfonnance in sectors other than manufacturing. To the optimist, recent trade improvements during a period of sagging domestic demand may be indicative of the arrival oflonger-tenn rewards. It may also be argued that the development of competitiveness in manufacturing is being stunted by the fact that the programme of reduced assistance has a long way to go, especially in many of the most inefficient industry groups. Nonetheless, twenty years ofdiminishing general levels of protection have not yet brought aboul a sustained improvement in Australia's extemal trade situation. 21

"

Between 1946 and 1980, Australia c:ltpcrienccd only six years of deficits on the balance of trade on merchandise. During the 19805, trade deficits were recorded for every year except for two very small surpluses in 1983·84 and 1987·88. However, it is difficult to isolate the impact of potential competitiveness changes versus 'excessive' domestic demand in the high growth period between 1983 and 1989.

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At a more disaggregated level, one of the most relevant findings for induslfy policy has been the disappointing lfade performance lfends over the period between 1975 and 1990 for the highly competitivenowprotection induslfies of the 1970s.1t can be argued that this group of industries would be expected to nourish in domestic economy with lower levels of assistance. However, without the outstanding lfade performaoce of ASIC 295 (oon-ferrous metal products), their lfade perfonnance measures teod to be worse than other groups (that is, those with higher protection and lower competitiveness in the 1970s). In view ofthe study findings, there appears to be some reason to doubt U,at reduced protection in manufacturing will, by itself, be inSlfumenlal in bringing about desired longer-tenn objectives of Auslfalian induslfy policy. To recapitulate, there has been no sustained improvement in trade perfonnance in manufacturing, total merchandise or goods and services overall sioce the early 1970s, a period of general reduction in assiSlance to manufacturing. Furthermore, the induslfy groups with high competitive advantage potential in the 1970s do not appear to have benefited from the slfuctural rcadjuslfnent accompanying reduced protection. It is lfue that many of the highly protected induslfies have yet to undergo substantial reductions in assistance. However, these induslfy groups actually comprise only a small part of the manufacturing and tOlal employed labour force and it seems hopeful to assume that the resources released from these sectors will provide U,e basis for large gains in competitiveness in other sectors. For example, employment io the three largest induslfy groups with high levels of protection - textiles, clothing and footwear, and motor vehicles and parts - is equal to only 2.3 per cent of the employed Auslfalian workforce in 1988-89 and 16.5 per cent of all people employed in manufacturing. REFERENCES Dalassa, D. (1977), "Revealed Comparative Advantage Revisited: An Analysis of Relative

Export Shares of the Industrial Countries Sod"l Srudies, 45, pp.327-344.

1953~ 71 ",

Manchester Schoof ofEconomics and

Balassa, B. (1979), "The Changing Pattern of Comparative Advantage in Manufactured Goods", Rcy;ew of Economics and Staristics, 61, pp.259-266. Bowen, H. (1983), ''On the Theoretical Interpretation oflndices of Trade Intensity and Revealed Comparative Advantage", Weltwirtschaftliches Archives, 119, pp.464-472. Dowen, P. (1986), "On Measuring Comparative Advantage: Further Comments", Weltwirtschaftliches Archives, 122, pp.379-382. Bureau of Industry Economics (1989a), "Trade Performance of Australian Manufacturing", Information Bulletin 15, AGPS, Canberra. Bureau of Industry Economics (1989b), "ConCentration in Auslralian Manufacturing 1972-73 to 1986-87", Working Paper 57, Canberra. Cornwall, 1. (1977), Modern Capitalism: Its Growth and Transformation, Martin Robertson, London.

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Daniels, P. (·1992), "Australia's Foreign Debt: Searching for the Benefits", Economic Papen, Il,pp.l4-31. Daniels, P. (1993), "Research and Development, Human Capital and Trade Performance in Technology-Intensive Manufactures", Ruearch Policy, 22, pp.207-241. Department of Industry, Technology and Commerce (1988), "Industrial R&D, Investment and Structural Change in Australian Manufacturing: An International Comparison", a joint paper by DITAC and the DECO, November, 1988, AGPS, Canberra. Department of the Prime Minister and Cabinet (1991), "Building a Competitive Australia", 12 March 1991 Statement, AGPS, Canherra. Dosi, G., K. Pavitt and L. Soete (1990), 'Ifie Economics ofTec1mical Change (lfId Inlemalional Trade, Harvester Wheatsheaf, New York. Dosi, G and L. Soele (1991), 'Technological Jnnovation and International Competitiveness", in J. Niosi (ed.), Technology and Naiional Competitiveness, McGill-Queen's University Press, Montreal, pp.91-118. Desi, G., J. Zysman and L. Tyson (1990), "Technology, Trade Policy and Schumpetcrian Efficiencies", in J. de la Mathe and L.M. Duchanne (cds.), Science, Technology and Free Trade, Pinter Publishers, London, pp.19-38. Economic Planning AdvisoryCouncil of Australia( 1991), "Improving Australia 's International Compelitiveness", Council Paper 45. AGPS, Canberra. Engelbrechl,l-I. (1992), "Australia's Industrial R&D Expenditure and Foreign Trade",Applied Economics, 24, pp.546~556. Hughes, K. (1986), Exports and Technology, Cambridge University Press, Cambridge. Industries Assistance Commission (lAC) (1985), "Australian Trade Classified by Industry 1968-69 to 1981-82", Working Paper, March 1985. Krugman, P. (1987) (00.), Strategic Press, Camhridge, Ma<>s.

Tra(J~

Policy ami lhe New Inlemalional Economics, MIT

Makin, A. (19890), "Externallmbolollce ; Burden or Blessing?", The Ausfra!itlr! QI/arterly, Spring, pp.337-343. Makin, A. (1989b), "Why Worry About the Capital Account Surplus?", Policy, Sununer, pp.5-8. Mathe de la, 1. and L.M. Ducharme (eds.) (1990), Science, Technology and Free Trad/!, Pinter Publishers, London. Moore, D. (1990), "Debt- Is It Still a Problem?", Th~Austra/ian Economic Review, 91, pp.1 7-

32. Nelson, R. (1984)High-technology Policif!s: A Five-nation Comparison, American Enterprise Institute for Public Policy Research, Washington. Niosi, J. (1991) (ed.), Technology and NalionaJ Competitiveness: Oligopoly, Technological Innovalion and Intemational Competition, McGill-Queen's University Press, Montreal.

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OECD (1991), Technology and Productivity: Tk Challenge for Economic Policy, lbe Technology Economy Programme (fEP), OECD, Paris. Panic, M. P. and P. Joyce (1980), "UK Manufacturing Industry: International Integration and Trade Performance", Bank of England Qunrterly Bulletin, 20, pp.42-55. Pitchford, J.D. (1989a), "Does Australia Really Have a Current Account Problem?", Policy, Winter, pp.2·5. Pitchford, J.D. (1989b), "The CUlTent Account: Still a Secondary Issue", Policy, Spring, pp.8·) I. Pitchford, J.D. (1990), "External Debt and Foreign Invesunent", Economic AnalYlil and Policy, 20,pp.17-32. Porter, Michael E. (1990), The Competitive Advantage ofNarions, Macmillan Press, London. $oete, L. (1990), "Technical Change Theory and International Trade Competition", in J. de la Mothe arxi L.M. Ducharme (eds.), Science, Technology and Free Trade, Pinter Publishers, London, pp.9-18. Sjaastad, L.J. (1989), '1be Deficit: A Crisis of Minor Proportions", Economic Paperl, 8, ppl924. Spencer, B. and J. Brander(1983), "International R&D Rivalry and Industrial Strategy, Review ofEconomic Studiel, 50, pp.707-722. Spencer, B. (1987), "What Should Trade Policy Target'r', in P. Krugman (ed.), Stratetgic Trade Policy and the New InternarionaJ Economicl, MIT Press, Cambridge, Mass. Tyson, L. and J. Zysman (1983), "American Industry in International Competition", in J. Zysman and L. Tyson (cds.), American Industry in International Competition,Cornell University Press. Ithaca, pp,15-59.

174

Economic Analysis and Policy

Vol. 23 No. 02, September 1993

APPENDIX 1 - VARIABLES USED IN THE STUDY TRADE V.ri.ble name

Period

Gmnal ducription

Source

XMSAL74

Averaae 1974 - 1876 Avcr&g" 1988 - 1990

Trade balance as a percent of domestic ~a1es (%)

IAC(1985) ABS (Microfiche) ABS Cat.No 8203.0

= XMSALOI

mR"

(EXpOrlS -Impons) Domestic Sales

·100

-1990

Change in trade balance as It percent of dOllle,~tie sales (% pis) =XMSAL89-XMSAL74

Average 1988 -1990

Net Trade Ratio

Change 1974·76 to 1988

(Exports - Imports)

=

.

"

lAC (1985) ADS (microfiche)

(Exports + Imports)

PROTECTION Variable name

Ptriod

General des.;,ription

AVERP73 AVERP86 ERJ'OJ

Average 1971- 1974 Avwl.ge 1985 - 1987 a.ange 1973 -1986

Average effective rates of

Ie Annual Reports

8.'l.~i..lance

(vllriou.s years)

('l»

Change in average ERA 1973 to 1986 (% pts) '" AVERP86 - AVERP13

Source

.

"

OTHER POTENTIAL INFLUENCI<:S ON COMPEllTiVENESS C .. n..ral d""riplion

Puiod

Source

GrQWth in AwtralilUl domutic sale~ (%)

1975 -1989

lAC (1985), ABS Cal.No 8203.0

1978-1988

UN International Trade Statistics Yearbooks (1980 to 1990)

Australian ro::
1986

ABS Cat No 8112.0

OECD R&D inten..ity (Expenditure as a percent of Industry Value-added)

1983

UN (1986)

lndu..try Technology Gap (Difference between Australian, and Small OECD Nation. Busines& Enterprise R&D (BERD) "'. a percellt of Industry Value-Added)

19113

DITAC(1988)

Concentrl\lion Ratios (for the Four Large..t Enterprise Groups. Trade--A<1justed Tumover Basis)

1987

Domestic sales 1986-89

=

Domestic Sales 1974-76

• 100

Growth in world export value.. ('l» Value of exports 1988

=

Valueofexporu 1978

·.100

,

BIE(1989h)

175

Economic Analysis and Policy

Vol. 23 No. 02, September 1993

APPENDIX 2 - TRENDS IN PROTECTION AND TRADE PERFORMANCE IN SELECTED AUSTRALIAN GROUPS' ASIC 21: Food, Beverages and Tobacco ProteCtion 1%1

Trade Indicator,

25

4

fI,

20

3 5

2

~

0

5

nn o

0 e::l

10 71 72 1J 74 75 76 77 78 79 8081

az

,

83 84 85 86 97 88 89 90 91TGT

Fimmcilll Yee, Ending

o

Average Effective Rate of Assistance (%) Net Trade Ra"tio

Trade Balance (% GDP)

As discussed, assistance levels are not strictly comparahle across the study period. Tbey are intended to be indicative only.

TGT = 1996 target average rate of effeclive assistance

176

Economic Analysis and Policy

Vol. 23 No. 02, September 1993

APPENDIX 2 - TRENDS IN PROTECTION AND TRADE PERFORMANCE IN SELECTED AUSTRALIAN GROUPS (CONTINUED) ASIC 23: Textiles ':.:'O:.:Io:.:':.:":.:oo'---":.:''---'

T:.:,=''',:.:':="''''::':.:''''::;' 0

80 r

-0.2

'0

-0.4

40 ·0.6 20 -0.8

o

., 1970 11 72 73 74 75 7fI 11 78 79 80 al 112 8J 84 86 86 87 118 89 90 9HOT

Financial Ve8/' Ending

ASIC 24: Clothing and Footwear 300

Proteclion (%1 T'Me Indicators ,----------------:.:.:.::.:.....==; 0

-0.2 200 -0.4

'50 -0.6 100 .

·0.8

50

o

_, iii 10 11 727374 7S 78 77 78 79808'8213 84

Financial Year Ending

n

II .7

aa

II 80 9HOT

177

Economic Analysis and Policy

Vol. 23 No. 02, September 1993

APPENDIX 2 - TRENDS IN PROTECTION AND TRADE PERFORMANCE IN SELECTED AUSTRALIAN GROUPS (CONTINUED) ASIC 294: Basic Iron and Sleel P,otection (%1 T'nde Indicalors 40~,==::.:..:"---------------=--C:.-=:.:....;I0,.\

;il ~ ~ I qn '

,!'

30 j

, ,

J 0.3

~

A" \ ..

,

~ 0.2

I

"I "

,:'I 20

I

0.1

, ,

'0

''''! ~

I

o

~

, IWi

Y l. In o

"-

01: 'ff "-

'il ~ , Il 'in 'If ' ''1' n~ I' " 01", I ,

,

i

I'

I

,

I ,I II I .

ill i Ii

1 0.1

12'R~ "

i

I

I

l

II

0.2

0.3

0.4

6970 11 12 73 14 75 16 17 18198081828384858681888990 !IITGT

Financial Vear Ending

ASIC 295: Basic Non~I.· errous Metals Protection (%)

Trade Indicators

'51------------------~--,t2.5

5 I~

o

)~~j,

2

101,

Inn In n

~

·5

~ U'

·10

0.5

0 6970 1\ 72 73 74 75 76 17 78 79 80 81 82 83 84 65 86 87 88 89 90 91TGT

Financial Year Ending

.5

178

Economic Analysis and Policy

Vol. 23 No. 02, September 1993

APPENDIX 2 - TRENDS IN PROTECTION AND TRADE PERFORMANCE IN SELECTED AUSTRALIAN GROUPS (CONTINUED) ASIC 323: Motor Vehicles and Parts Protection l%)

Trade Indicators

160 r-===-------------.::.~~:::::::::..; 0 '40

-0.2

120

-0.4

-0.6

·o.S

., 40

.1.2

20

-1.4

o

.1.6 69 70 71 72 73 14 76 76 77 78 79 80 81 8283 84 85 86 87 88 89 90 91TOT

Financial YOllr Ending

ASIC 335: Appliances and Electrical Equipment

.....:T.::,"":::•.:":':":::.:'O:.;" 0

C':.:'O.::":.:'::tiO::".::':.:"'::'

601

50

-0.5

.r-"-

40~~~:,"""-

.,

30 -1.5 20

·2

10

In ,

o

·2.5

69 70 71 72 73 74 76 76 77 79 79 90 81 82 8J 84 85 86 87 88 89 90 91TOT

Financial Yeer Ending

Source:

Indu.~tcy Commission

Annual Reports (various years); Ie (1985); ADS (microfiche)