Friday, December 16, 2011

We're richer than ever, richer than the US - Gregory on the mining boom

Living Standards, Terms of Trade and Foreign Ownership:
Reflections on the Australian Mining Boom

R G Gregory

Australia is experiencing its largest mining boom for more than a century and a half. This paper explores, from a national perspective, important economic differences that arise when a mining boom, such as the current one, is generated by sustained export price increases (trading gains) rather than export volume increases. Since 2003 the terms of trade changes – through their direct trading gain effect and indirect real GDP effects - have increased Australian living standards. The increase, measured from official data and relative to the US, is about 25 per cent; an increase which probably places Australian living standards well above those of the US. But official data inadequately adjusts for foreign ownership of mining resources suggesting that this estimate is probably a little too high.

Gregory on the Mining Boom



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1 comments:

The Lorax said...

You didn't highlight this bit...

If the terms of trade moved back to their 2003 ratio, RGDI,without any indirect RGDP response, would fall 12 per cent. This would be the largest negative macro shock to Australian living standards since the 1930s depression

Or this bit...

The current consensus, however, is that the terms of trade will not fall back to previous levels, although in the past they have always done so and fallen beyond the previous low point.

Or in other words: Parko's not worried!

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