Media Release  Bob McMullan Minister for Trade

MT158 20 September, 1995

Comment on Paper by Helen Hughes

This morning's editions of The Sydney Morning Herald and The Age carried  articles by Max Walsh citing, with apparent approval, a paper by Helen Hughes  and Hisako Toguchi entitled "Is Australia exporting enough?".

The research which underpins the conclusions contained in this paper is  seriously flawed. Indeed, the Australian Statistician has advised Professor  Hughes directly that the paper contains "many errors of fact, resulting in  incorrect conclusions", and that there are "many instances where published ABS  data are misreported and classifications are incorrectly described".

Attached is an analysis of the paper, prepared by this office for the Minister for  Trade.

Should you require further information, please contact Gordon Neil on (06) 277 7420.

" Parliament House, Canberra, ACT 2600. Tel: (06) 277 7420  " Fax: (06) 273 4128  "

-AUSTRALIA'S EXPORT GROWTH: REAL OR IMAGINARY? .:1 :l recent article in this newsoaper. ?rot'essor He len Hughes questioned ,-\ustralia 's export performance. For my part. I believe the Australian economy and our exports have performed strongly in the last three years. w ith particularly encouraging performances in many 0f the areas targeted by the micro-economic reforms of the early to mid-1980s, \Vhether Professor Hughes' or my view IS correct IS not simply an academic question: the ,-\ustralian economy can only provide sustainable job growth sufficient to reduce unemployment if net exports grow more rapidly than domestic demand . Thus the question of who is right goes to the very heart of the government's policies . Given the importance of the question. it is useful to consider in some detail Professor Hughes' assertion that Australia "has (not) lifted its export game" and her claim that the exports o r" goods and services share of Australia 's GDP "stabilised in the recession , but appears to have fallen again with the recovery in 1994". Consider the picture underlying the official national accounts estimates compiled by the Australian Bureau of Statistics (Chart I). Whether measured at current prices or in real terms, this ratio has grown rapidly through both the recession and the subsequent recovery. ("!o\ ., :0 13 16 14 II 10 ÃÂ Cha rt 1: Exports of goods and services as a % of Australia's GDP --A t 1989.90 pnces  " " - - At CU'T'ent pnces ~ e 0 ... ~ .., .. = ... ~ ~ ~ ~ e e E ~

:lchievement and one or' \vhich the governm ent

and Australian exporters are justifiably proud,

I n her artic Ie. Professor Hughes :llso put  (onsiderable emphasis on comparing Australia 's  trade performance w ith that of the O Ee D .  Ho wever. she has chosen to exclude five membe r  (ountries. leaving a subset of the OECD of w hich

she claims "Australia has the lowest exports- to " G OP ratio", There are (\.vo points here \vhich i  believe need to be examined.

First. why exclude countrie s such as the USA  and Japan from the comparison? They are two or"  the few OECD members who share with

:\ustralia the characteristic of being physicall y  remote from many of their major trading  partners. an important factor in determining a  nation'S trading patterns . The following graph

,hows how Australia compares with these two  largest economies in the OEC D in terms of the  exports to GDP ratio - given how far we are now  :lbove them I am completely unsurprised that

Professor Hughes has chosen to exclude them  from her "comparison".

Chart 2: Exports of goods and services  as a % ofGDP

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U SA

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16

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12

10

6 LI _______________ 6

Ma~ Ma~ Ma~ Ma~ Ma~ Ma~ Ma~ Ma~ Ma~ Ma~

76 i8 SO 82 S ~ 86 38 90 91

Source: OECD Main Economic Indicators . Feb 1995

Further, most of the remaining OECD members  Professor Hughes regards as providing a suitable  basis for comparison lie in Western Europe - an  area more relevantly described as the United  States of Europe. given the growth in their  economic and social integration - and have a  combined geographical footprint only about half

that of A ustrali a. .-\s a result it is hardly  surprising that there is relatively vigorous trade  between w hat are essentiall y l1eighbourin g:  -:ountries with close econom ic ties.

[f one w ere to compare seriously the trading  intensity of these selected economies with that of

-\ustraiia It \\ould nm be inapproprtate [0 also  ~o nslcier the ievel or' trade between ,--\ustralia 's

:itates. m uch of which takes place over greater

j istances than many intra-Europe an exports.

Wo rking estimates by the ABS put the level of  interstate trade at around the same level as our  international trade. This implies that the sum of  Ã¢Â‘ )ur international and "domestic" exports - J.

'neasure comp arable with the internationa l  :::XpOrts of Professor Hughes' set of countries - IS

Jcrually running at around 40 per cent of GOP  I and growing).

\Vhile no-one would suggest that interstate trade  has any direct role in improving our balance of  payments position - although it does give us a  useful history in developing long-distance  relationships - it does provide a means of  comparing trading intensities on a reasonably  common basis. The result of doing so suggests

strongly that there is linle if any reason [0  despair simply because our export to G OP ratios  J.re below those of countries such as Germany

::md The Netherlands .

Anv export-intensity comparison involving  countries such as The Netherlands should also  acknowledge not only their close ties with  adjoining countries but also their entrep6t role in

relation to regional trade ie, the extent to which  their recorded exports were actually produced in  other countries. As an indication of the potential  size of such effects, Singapore's entrep6t role in

South-East Asia led to it having an exports of  goods to GOP ratio of 130 per cent in 1993.  Bilateral comparisons between countries with  significantly different levels of re-exports are  hardly the basis on which to assess comparative  export performance.

The second point I would make is that Professor  Hughes' comparisons are not only selective but  that they are based on out-of-date data.  .-\ustralia's recent performance has been much

bener than the OECD average. The following  graph shows how Australia's export intensity has  increased to the point where it has now overtaken  the OE CD average - this is a remarkable

outcome when you consider the extent to which  intra-EU trade boosts the export ratios of many  Eu ropean OEeD m embe rs.

C hart.3: Exports of ~oods and sen 'ices  ~l S \~/o of GDP

"' , " '. ' ," ',' . -- ,)ECD

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\tar- \!Jr-\!Jr-,\!Jr - -'!Jr-\IJr-\.t: lr-.\Iar-,'ta.r-I'.tar--6 -~ ~o j: 3.. ~6 38 -)0 n 9J

So urce: O ECD Main Economic Indicators. Feb 1995

Professor Hughes contends that "until Australia 's  exports come close to 30 per cent of GOP. the  balance of payments will be in a constant state of  crisis ", There is no doubt that continued growth

in exportS - a clear and often-stated aim of this  government - wo uld help to improve the current  account position of our Balance of Payments.  But it is dangerously simplistic to assume in  effect that all other factors will be resolved solely

by further increases in exports. As obvious  examples, the government is keenly aware of the  pressure on the current account of factors such as  A ustralians' affinity for imported luxury items,  and the long-standing deficit on income

payments between Australia and the rest of the  w orld l. In this context it is disappointing that  Professor Hughes has effectively nominated  export performance as the Balance of Payments  culprit while denying the extent to which it has

been contributing in an increasingly positi ve  manner to our overseas earnings.

[n addition to considering goods and services in  aggregate, Professor Hughes quite rightly  examined the exports of goods and services  separately . However_ when examined in detail

the official figures for both of these categories  present a very much better picture than the one  portrayed in her article.

The following graph shows quite clearly that the  trend in Australia' s exports of goods to GOP ratio  has been strongly upward in recent years.

:-\nd it is worth re-staring rhaL despire some belief to  ,he contrary, the Co mmonwealth Government  Jccounts for less than one-seventh of Australia'S gross  foreign debt.

