contribution of services is tempered by fly-in, fly-out mining, which results in a smaller
services sector in the region than otherwise, while boosting services in Urban_WA.
The bottom row in Table 5 shows the national results and indicates the extent of the
structural change brought about even in the short run by the terms of trade improvement.
Real GDP is virtually unchanged, as contributions are only coming from indirect taxes
since primary factors are fixed in aggregate. Agriculture’s share of national income
shrinks slightly, by 0.02 percent. Mining’s share of output rises by 0.85 percent, a
substantial result given that the sector’s share of national output pre-simulation was 7
percent (calculated from Table 2). In manufacturing, TCFs suffer a dramatic shrinkage.
National output shrinks by more than 25 percent, which is equivalent to a fall in the
sector’s national income share of 0.13 percent.5 Food and basic metal output shares
increase. Other manufactures, hit hard by the falling prices of competing imports in the
simulation period, fall as a share of national income by 0.89 percent. While
manufacturing’s total share loss is significant, the change in composition between
manufacturing sectors is even larger.
Regional implications in the wake of south eastern Australia’s 2006 drought
The drought of 2006, by being concentrated mainly in south eastern Australia, will have
exacerbated some of the disparities in regional economic growth induced by the terms-of-
trade boom. At the same time, the boom in the mining sectors may have offered some
scope for labour to move from agriculture. If this is so, this will alleviate the negative
short-run national employment effect that, according to our earlier study (Horridge et al.,
2005) contributed 0.6 of the overall 1.6 percent loss in real GDP due to the 2002-03
drought. Without repeating the drought simulation for 2006, we can surmise that real
GDP for 2006-07 will be 1.0 to 1.5 percent lower than budget projections, due to drought,
indicating an eventual figure of 1.7 to 2.2 percent (the budget forecast was for 3.25
percent real GDP growth). At the same time, we might expect the state accounts to show
widening disparities in growth, with mining contributing to relatively rapid growth in
Western Australia, Northern Territory and Queensland, and the drought reinforcing
slower growth elsewhere.
5. An application to Indonesia using IndoTERM
IndoTERM is a member of the TERM family which treats West Java and the rest of
Indonesia as separate economies. IndoTERM includes two features not present in the
standard version of TERM, namely:
Multiple household types
5 We were able to check our simulated result for TCFs with the sector’s share of GDP in the national
accounts (ABS 2006a). The average share in 2003-04 was 0.38%, falling to 0.27% in December 2005,
close to our simulation result. The same impact is not as apparent for mining, as much of the increase in
prices accrues to production taxes that are not identified separately for mining in the national accounts.
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