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

Results

We now turn to the results of our simulation, consisting of the trade price shocks shown
in table 1, in a short-run setting. The mineral price shocks alone have accounted for 26.3
percent out of a total 28.0 percent improvement in Australia’s terms of trade between
2003-04 and March 2006 (Table 3, national results). The impact of the growth in demand
for minerals for both export and import volumes is larger than the sum of all four groups
of shocks. The second most significant row in table 3 is that for imported fuel shocks.
The negative impact on Australia’s real GDP almost completely offsets the impact of the
mineral price shocks. The negative impact on the terms of trade (-7.3 percent) is smaller
than the positive impact of the mineral shocks, consistent with Australia’s status as a net
exporter of mineral and energy products. Rising fuel prices acting alone have a negative
impact on farm output. Farming regions are vulnerable to larger negative impacts from
rising fuel prices than elsewhere. Yet the row showing farm and food shocks reveals that
the most recent resources boom has not been entirely bad news for farmers, although the
positive impacts at the national level are considerably smaller than the negative impacts
of the imported fuel shocks. The final effect shown in table 3 is that of falling import
prices, dominated by manufactures from China. Falling import prices since 2003-04 have
had a positive effect on the terms of trade and trade volumes.

Table 1. Export and import shares (2001-02) and price shocks
(% change between 2003-04 and March 2006)

Data sources: ABS (2006b), ABARE (2006).

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