Tim Riley
Director
Tim Riley Publications Pty Ltd and Economic Literacy Centre
The Nature of Structural Change
• Change in the structure of the economy
• A reallocation of resources including land, labour, capital and enterprise
• Primary, secondary and tertiary industries
• Changing shares of output, employment, exports and investment
Sources of Structural Change
 Market induced: changes in consumpti0n patterns
 Government induced: tariff and quota reductions
 Domestic influences: changes in industry sectors
 Global influences: changes in technology, trade patterns and the exchange rate
Structural Changes in Australia
 The increasing importance of services
 The growth of the mining industry
 Faster growth of resource rich states like Qld and WA
 Technological changes such as diffusion of digital technology
Sectors of the Economy
 Primary, Secondary and Tertiary
 Agriculture
 Mining
 Manufacturing
 Services
Industry Shares of Output
Industry Shares of Output
 Agriculture 3% ‐ small output share but large exports
 Mining 7% ‐ small output share but huge exports
 Manufacturing 12% ‐ declining but still exporting
 Services 78% ‐ dominant share reflecting consumption patterns and specialisation
Industry Shares of Employment
Industry Shares of Employment
 Agriculture 4% ‐ capital intensive
 Mining 1% ‐ capital intensive
 Manufacturing 11% ‐ capital intensity/loss of competitiveness
 Services 84% ‐ labour intensive and highly specialised
Industry Shares of Investment
Industry Shares of Investment
 Agriculture 4% ‐ agribusiness
 Mining 13% ‐ iron ore, coal, LNG and metals
 Manufacturing 11% ‐ investment in mining related activities
 Services 72% ‐ retail centres, finance, banking, insurance, health and education Industry Shares of Exports
Industry Shares of Exports
 Agriculture 18% ‐ food and raw materials
 Mining 42% ‐ iron ore, coal, LNG and metals
 Manufacturing 17% ‐ transport equipment, building materials, wine and beer
 Services 23% ‐ tourism, transport and education
Trends in Activity by State
 Output: NSW (35%), Vic (25%) Qld (18%) WA (12%)
 Employment: NSW (35%), Vic (25%) Qld (20%) WA (10%)
 Investment: NSW (32%), Vic (24%) Qld (21%) WA (14%)
The Rate of Structural Change
 Measured by indices of structural change over time
 Changes in output and employment by different industries over time
 Rates of structural change rise during investment booms such as the mining boom
Factors Driving Structural Change
 The demand for services and population ageing
 The industrialisation of East Asia including China
 Changes in government economic policy
 The rate of technological change
 Changes in the exchange rate: real appreciation/real depreciation
Adapting to Structural Change
 Assistance to Industry
‐ new technology
‐ increased exports
‐ close down and leave the industry e.g. steel and cars
• Assistance to Labour and Communities
‐ income support, retraining/re‐skilling and relocation
‐ regional employment programmes
Section III Rubric
In your answer you will be assessed on how well you:
• Demonstrate knowledge and understanding relevant to the question
• Use the information provided
• Apply relevant economic terms, concepts, relationships and theory
• Present a sustained, logical and cohesive response
Question 26 ‐ 2012
 Analyse the impact of changes in the global economy on the structure of industry in the Australian economy. In your response, you should refer to the economic information provided.
Question 26 ‐ Introduction
Define key terms such as the ‘global economy’ and the ‘structure of industry’. Perhaps introduce the concept of structural change.
Analyse the main changes in the global economy that have impacted on the structure of Australian industry:
• China’s continuing growth and development and demand for resources along with the rise of East Asia
• The mining boom and strong global demand for Australian commodities
• The appreciation of the exchange rate and continuing inflows of foreign capital
Analyse the impact of changes in the global economy on the structure of industry in the Australian economy in terms of the shares of GDP, employment, exports and investment accounted for by agriculture, mining, manufacturing and services.
Changes in the global economy such as the global resources boom between 2003 and 2007 led to rising commodity prices and lifted the terms of trade to record highs. This resulted in a significant appreciation of the Australian dollar in currency markets. The more recent second phase of the resources boom has led to record levels of capital inflow mainly consisting of direct and portfolio investment in the mining and resources sector of the economy. This has underpinned strong foreign investment and led to appreciation of the Australian dollar to record highs.
The shares of GDP changed dramatically for agriculture (3.2% to 2.8%), manufacturing (15% to 9.5%) and mining (5% to 9.5%) between 1991 and 2011. This reflected a loss of competitiveness of agricultural and manufactured exports due to the high exchange rate, and the strong demand for mining exports sourced from fast growing economies such as China, India, the NIEs and ASEAN.
In terms of exports the impact of these changes in the global economy have been just as profound with mining accounting for 54.4% of exports in 2011 compared to a fall in the export share of manufacturing from 16.5% in 2005‐06 to 13.0% in 2009‐10. Employment shares have not changed as dramatically although manufacturing now accounts for only 8.5% of the total, and services a massive 86.4%. Most of the growth in employment has occurred in services at the expense of manufacturing which has lost employment due to the increased competitiveness of low cost overseas producers such as China and India. Structural change has occurred in the Australian economy with labour and capital resources being reallocated from non mining states to mining states.
The major changes in the global economy that have impacted on the structure of industry in the Australian economy have been:
• China’s growth and the global resources booms have seen an increased share of GDP, employment, exports and investment accounted for by the mining sector
• The appreciation of the exchange rate has reduced the competitiveness of some manufactured (cars, clothes and steel) and service exports (tourism and education)
• Continuing foreign direct and portfolio investment in the resources sector and mining industry in particular
• There has been a reallocation of resources including labour and capital away from non mining states to mining states
Notes from the Marking Centre
In better responses, candidates wrote comprehensively on the relationship between the changes in the global economy and its impact on the structure of industry in the Australian economy. In better responses, candidates also integrated economic theory with both the stimulus material and their own data, and considered the four main sectors of the Australian economy, agriculture, mining, manufacturing and services in some detail. In addition, better responses were well structured and sustained; they often included key definitions and correctly explained diagrams. These candidates made clear links in a specific manner rather than in a generalised way.
In weaker responses, candidates tended to be more descriptive and general in nature. They focused on describing the impact of some changes in the global economy, but with minimal linkage to their effects on the structure of industry in the Australian economy. These responses typically included some poorly drawn diagrams (tariffs; subsidies, exchange rates, etc) that were not linked correctly to the question .In weaker responses, candidates commonly made limited use of statistics, either from the stimulus or their own knowledge. They also provided limited examples that directly linked the impact of changes in the global economy on the structure of the Australian economy. In many instances, candidates simply chose to rewrite or copy out parts of the stimulus without demonstrating any clear understanding of the relationships involved.