AUSTRALIA'S ECONOMIC RELATIONS WITH EAST ASIA : PATTERNS OF TRADE AND INVESTMENT AFTER THE GARNAUT REPORT

Abstract

This academic exercise explores the impact of Australia's liberalisation process on Australia-East Asia economic relations, with reference specifically to the Garnaut Report. A comprehensive summary of the Garnaut Report sets the scene, and trade patterns are analysed using a number of techniques. It is found that Australia has shifted away from the American and European markets, and has focused on the East Asian market. Trade intensity between Australia and East Asia has been high. Australia's main exports to East Asia are natural resource intensive, but there has been significant growth in the export of technology intensive and human capital intensive manufactured goods to East Asia. A high level of intra-industry trade exists for several manufacturing industries. Although Australia experienced a growing balance of trade surplus with most East Asian countries, Australia's share of East Asian trade has been declining. This shows that though Australia has enjoyed strong export growth in East Asia, more has to be done to ensure that Australia benefits from the East Asia dynamism in the 1990s. Investment flows are also explored. It is found that though East Asian investors are keen to put their money in Australia, Australian companies still prefer to invest in the United States or in Europe. It is also observed that most East Asian investments in Australia are in real estate. Finally, Constant Market Share analysis is used to assess how well liberalisation has led to the growth of Australian exports to East Asia. Focus on the East Asian market was a good policy choice, as this region experienced high economic growth over the past decade, and is expected to continue as a centre of economic activity for the next decade. Liberalisation is essential for Australian exports to remain competitive. High export growth can only be sustained by competitiveness. Therefore, it is important that Australia continues with its liberalisation process. This paper demonstrates that unilateral liberalisation can be beneficial, in line with the paradigm of free trade. Trade liberalisation has enabled Australia to experience high export growth in the East Asian market, and consequently the country's economic growth has improved.