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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: https://www.rba.gov.au/publications/rdp/1993/pdf/rdp9310.pdf
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    References listed on IDEAS

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    1. Jacqueline Dwyer & Christopher Kent & Andrew Pease, 1993. "Exchange Rate Pass-through: The Different Responses of Importers and Exporters," RBA Research Discussion Papers rdp9304, Reserve Bank of Australia.
    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. Morris Goldstein & Mohsin S. Khan, 2017. "The Supply and Demand for Exports: A Simultaneous Approach," World Scientific Book Chapters, in: TRADE CURRENCIES AND FINANCE, chapter 2, pages 83-104, World Scientific Publishing Co. Pte. Ltd..
    6. Richard Baldwin & Paul Krugman, 1989. "Persistent Trade Effects of Large Exchange Rate Shocks," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 104(4), pages 635-654.
    7. Kremers, Jeroen J M & Ericsson, Neil R & Dolado, Juan J, 1992. "The Power of Cointegration Tests," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 54(3), pages 325-348, August.
    8. John Pitchford, 1993. "The Exchange Rate and Macroeconomic Policy in Australia," RBA Annual Conference Volume (Discontinued), 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. Nicolas De Roos & Bill Russell, 2002. "The Exports Transmission Mechanism of Foreign Business Cycles to Australia," The Economic Record, The Economic Society of Australia, vol. 78(240), pages 50-59, March.
    2. Jacqueline Dwyer & Christopher Kent & Andrew Pease, 1994. "Exchange Rate Pass‐Through: Testing the Small Country Assumption for Australia," The Economic Record, The Economic Society of Australia, vol. 70(211), pages 408-423, December.
    3. Michele Bullock & Stephen Grenville & Geoffrey Heenan, 1993. "The Exchange Rate and the Current Account," RBA Annual Conference Volume (Discontinued), in: Adrian Blundell-Wignall (ed.),The Exchange Rate, International Trade and the Balance of Payments, Reserve Bank of Australia.
    4. Mr. Craig Beaumont & Li Cui, 2007. "Conquering Fear of Floating: Australia's Successful Adaptation to a Flexible Exchange Rate," IMF Policy Discussion Papers 2007/002, International Monetary Fund.
    5. 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.
    6. Luci Ellis, 2018. "Where is the Growth Going to Come From?," Economic Papers, The Economic Society of Australia, vol. 37(1), pages 4-16, March.
    7. 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, June.
    8. 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, October.
    9. Duke Cole & Samual Nightingale, 2016. "Sensitivity of Australian Trade to the Exchange Rate," RBA Bulletin (Print copy discontinued), Reserve Bank of Australia, pages 13-20, September.
    10. Nicolas de Roos & Bill Russell, 1996. "Towards an Understanding of Australia’s Co-movement with Foreign Business Cycles," RBA Research Discussion Papers rdp9607, Reserve Bank of Australia.

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