CGE modelling of the resources boom in Indonesia and Australia using TERM



different regions in each destination) results in two matrices that together are many-fold
smaller than the single matrix that is otherwise required, thereby greatly reducing the
number of equations required to solve the model. The advantage of using the common
sourcing assumption increases with the number of regions in the database.

3. TERM goes international

The experience of the authors is that interest in TERM as a policy analysis tool is
growing globally, as policy debate turns increasingly towards disparities between regions,
and economic issues with a regional dimension such as transport and water infrastructure.
Other countries for which versions of TERM have been devised include Brazil, China,
Finland, Japan and Indonesia. Preparation of a database with 30+ regions has become
relatively straightforward within the TERM methodology but remains onerous with other
approaches. Brazil, China and Indonesia appear as obvious candidates for the TERM, as
each has approximately 30 provinces. In the case of China, the authors plan to develop a
137 sector, 31 region SinoTERM database during 2007. This will be based on the 122
sector Chinese input-output table released by China’s National Bureau of Statistics. The
137 sector version will include additional detail in agricultural and food sectors, which
are under-represented in the published table yet account for substantial shares of rural
employment.

The applications in this paper use two relatively new databases. The Australian version of
TERM is based on the 2001-02 input-output table (ABS catalogue no. 5209.0.55.001).
The Indonesian model
IndoTERM entails a 175 sector, two region (West Java and rest)
database based on the 2003 input-output table.2

4. Simulation of Australia’s terms-of-trade improvement

Background

Australia’s exports traditionally have been based on resource commodities, reflecting a
comparative advantage as a land abundant, relatively labour-scarce nation. Since World
War II, when agriculture accounted for over 25 percent of national GDP, agriculture’s
share of national income has declined and now sits at little more than 3 percent of GDP.
In this period, Australia has experienced several mining booms, which have reinforced
the resource-based component of the economy - at the same time as technological change
and income growth have reduced the share of national income provided by agriculture.
From 1945 to the late 1960s, manufacturing’s share of national income plateaued at over
25 percent of GDP, aided in no small part by protectionist policies (Maddock and
McLean, 1987). Thereafter, the rise of manufacturing in Japan, and the emergence of
South Korea, Taiwan and, more recently, China, have, in combination with international

2 The project’s terms of reference stipulated the West Java was to be represented. The requirements to
represent all the provinces of Indonesia although not onerous, were beyond the scope of the project.



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