LEE KAR YEE

29 May, 2020

1101 words
 BALANCE OF PAYMENT AND PATTERN OF TRADE IN
AUSTRALIA
INTRODUCTION

1) The balance of payments (BOP), records all economic transactions between Australia

and other countries. It includes current account, capital and financial account.

BOGS is counted by adding the goods balance and service balance (Eco

Manual,2020). For example, when the money inflows into Australia, such as the sale

of Australian product to China, then Australia will be received earnings from China,

then credit in current account under BOGS. In other way, when Australia purchase

foreign product such as purchasing car from local dealer, dealer need to pay it to

foreign country which it will record it as debit in current account under BOGS.

Next, (NPY) is the earnings that is related to investment such as interest payments on

borrowings and returns of investments (Eco Manual,2020). For instance, when

investment in Australia is invested by foreigner, the income will in the form of

dividend, interest, profits and others which leads to outflow of income which will be

recorded as debit in NPY. In other way, when Australia invest in foreign countries,

the income will flow back to Australia and it will be recorded as credit in NPY.

Besides, NSY refers to the non-market transfer, One-Sided transactions such as

products provided but not receiving any goods in return like insurance claims and

pensions.

While, KAS is a record that includes all international transactions includes public and

private sectors such as financial assets and liabilities (Eco Manual,2020). Capital
 transfer can be used to improve infrastructure developments or capital stock. (Eco

Manual,2020). Other component in capital account is purchase and sale of non-

produced and non-financial assets mainly related to intellectual property rights such

as patents, trademarks and others (Eco Manual,2020). Other than that, the financial

account is used to record direct investment which is more that 10% of share

acquisition, portfolio investment that includes purchase and sales of land, less than

10% share acquisition shares and others (Eco Manual,2020). It also records financial

derivates like future contract, other investments and also reserve assets (Eco

Manual,2020).

2) Pattern of trade, country’s openness indicator across countries. It measures in ratio of

trade such as exports, import and entrepot as Gross Domestic Product (GDP) in

percentage. When the ratio percentage rises, it means that the country is more open to

the world economy.

I. The definition of composition of trade is the pattern of goods and services

exported and imported. The pattern of Australia’s trade is two-way

merchandise trade, with 42.7% GDP. Australia known as Australia’s 2 nd

largest exporter of the world because Australia’s main export is focus on

minerals such as iron ore, coal and others.

In 1963 to 1964, the top 5 imports are 13.5% in transportation services motor

vehicle, 8.1% in parts and 7.6% in accessories petroleum and shale oils motive

power machinery and 2.4% in cotton piece goods In 2018, the top 5 imports

are 10.7% in personal travel services but not included 5.9% in education

passenger motor vehicles refined petroleum, 3.8% in ships, boats and floating

structures and 3.4% in telecom equipment and parts.

While, in 1960’s, the top 5 exports are wool 36.5%, wheat 13%, transport

services 6.3%, beef and veal 5.5% and raw sugar 2.4%. The top 5 exports in

2018 are iron ores 16.4%, coal 16.1%, education that is related to travel 8.6%,

natural gas 8.5% and personal travel services excluded education 5.7%.

The direction of trade is referring to where countries export and import from.

The direction of Australia’s trade in export is United Kingdom in 23.5%,

Japan in 22.4%, United States in 12.9%, other Europe in 12.4%, Oceanian and

Antarctica 8.7% in 1960’s.

to Japan, 5.9% to South Korea, 5.3% to United States and 5.2% to India

Whereas, UK still remain the same but in 27.8%, US 22.9%, Other Europe

15.6%, Other Asia 14% and lastly Japan 6.8%. The top 5 import market are

China 18% of total trade, US 12.3%, South Korea 7.3%, Japan 6.6% and

Germany 4.6%. Thus, it shows that import on composition and direction of

Australia’s trade does not change much.

II. Australia’s trading partners have resulted in significant change when Australia

going through structural change. Financial market and investment is needed by

different sector in Australia economy to drive the changes in the flow of

capital. Australia have high attractive on investment opportunities in the

economy due to Australia had a current account deficit [ CITATION RBA20 \l

1033 ].
From the graph above shows that Australia had a trade deficit with other countries. In 1960’s,

import values is more than the export values[ CITATION RBA20 \l 1033 ]. Moreover, Australia

has comparative advantage in exporting resources and agricultural commodities. Other than

that, the income balance in Australia has been in deficit for many decades which resident in

Australia have to pay extra to the non-residents. In recent years, it shows that foreign

liabilities is more that foreign assets, then Australian need to reduce liabilities by paying

interest.
The graph shows that from the mid 1960’s, wool was Australia’s largest export which have

40% on average of total export value in Australia. As agricultural sector falls, the share of

export declined from 10% to 15% of total export in recent years. In 1900’s, gold was

Australia’s top resource export, around 10% of total export values,[ CITATION RBA20 \l

1033 ] Thus, exporting agricultural fall from 1900’s to 2000’s and exporting natural resources

rises in the recent years.

compared to exports. However, it still has changes in the types of goods and services

occurred alongside long-run[ CITATION RBA20 \l 1033 ]. Share of imports accounted for by

industrial suppliers like machinery and equipment has decline from 30% in 1900’s to 15% in

2000’s as it has become smaller share of Australia economy. Whereas, imports of fully

assembled goods that is ready to be used have increase such as consumer goods from 15% in

1900’s to nearly 20% in 2000’s and capital goods from 15% in 1900’s to nearly 20% in

2000’s too. Services also is one of the largest components of Australia’s imports which is

related to the travel expenditure of Australia’s residents when they are overseas for education

and holiday purpose[ CITATION RBA20 \l 1033 ].

(C) Conclusion

The relationship between Australia pattern of trade and current account balance is if the

current account deficit, it will affect Balance of Payment (BOP) and pattern of trade. Next,
when current export value is more than import value, the BOGS improves, current account

deficit worsen.

References
RBA. (2020, MAY). The Australian Economy and Financial Markets. Retrieved MAY 28, 2020,
from RESERVE BANK OF AUSTRALIA: https://www.rba.gov.au/chart-pack/pdf/chart-
pack.pdf?v=2020-03-30-14-16-28