Factors that influence financial flows

Question 1

P1 (Direction of trade)

Answer 1

Trend:
* Australia has traded with ASEAN and speicifically China more in past decade.
Why?
* Complementary economies: Australia has mining and services, and ASEAN/CN have manufacturing.
Effect:
* Increased two-way trade, and ratification of FTAs.
* Increased specialization in mining production
* Improved X volumes and BOGS and CAD
STAT:
BOGS: From 2000 to 2020, CHina has increased to Aus’ largest X destination and from 5% of X to 36% of X
Also 9.2bn trade surplus with China SPECIFICIALLY

Question 2

P2 (Value of trade)

Answer 2

Trend:
* As aus reduced protection, value of trade inflows and outflows has increased.
Why?
* Hawke industry statements (1988 and 1991)
Whitlam cuts unilaterally 1973
Effect
* Aus’ general/averagae tariff level: from 25% (1980) to 1.2% (2019)
* In LT, as resources are alllcated away from inefficient to efficient sectors, increased X volumes
* BOGS: IMPROVES!
* BOGS surplus in 2018 and CAS since 2019!

Question 3

P3 (Changes in composition of trade M)

Answer 3

Trend
Increased imports in capital
Why?
* Because austtarlia has a lack of comparative advantage in labour intensive industries such as capital production and aus has the highest minimum wage in the world.
* Also cuz our FTAs with nations taht are good at K protudciton.
* ChAFTA and AANZFTA
Proof:
* Capital inflow has increased by 450% from 2001-2021
Result/BOPS:
* Since capital is high-vaoue added (its production involves a lot of value being added ot eh good because of labour, and the end has a lot more expensive) it leads to high debits because when we import it it’s a lot more expensive than the low value added we exported it as.
* Worsens BOGS and CA
STAT:
* ChAFTA’s implementation (2015) saw increase in K imports because BOGS went from 0.6% of GDP to -2.7% of GDP (2013-2016)
*

Question 4

P4 (Changes in composition of trade X)

Answer 4

Trend:
Increased services and mining exports
Why?
* Services cuz: low AUD (from 1.10uSD 2022 to 0.67 2020)
* More etrade with middle emerging ecojnomies
* Increased mining X has been a result of INCREASED TOT 70 (2016) to 129 (2023) plus increased in LNG exports (paris agreement - as of 2022 Aus is main LNG exporter)
Impact/STAT:
* Mining export volumes increased with revenue! -> improved BOGS and CA
* BPGS surplus since 2018 and CAS since 2019 as stated earlier.

Question 5

P5 (Changes in value of finance)

Answer 5

Trend:
Value of Aus FF have increased due to financial deregulation
STAT: 16 foreign banks entered aus market in ??
Stat:
S-I gap (austarlia had 0% net savings in 2000) which leads to the “filling in” of international funds through FF inflows.
BOPS:
Increased KAFA credits and increased future NPY debits which contributed to a structural worsening of the CA. .
STAT: NPY is in a -2-(-4)% of GDP alongside 44-year CAD

Question 6

P6 (Changes in direction of finance)

Answer 6

[stat: US UK Belgium: top three investors FDI into Australia.]
Australia has recently become a net equity lender because equity inflow and outflow ratio has changed.
STAT
NFE (new fortress energy - stock) has gone from 0% of GDP (2013) to -13% (2023)
Aus has increased FDI out over FDI in.
Why?
Superannuation policy which increased saving (11% currently)
Increased savings and increased FDI outflows from more loanable funds -> NFE has become more negative.
Impact on NPY:
Increase equity repayment credits over debits, improves NPY
2-4% deficit of GDP to -0.3% (2020) -> lowest in decades.
Improved CA!

Question 7

P7 (Changes in composition of fianance)

Answer 7

Trend
Increased FDI over FPI
Why?
* Increases in investment opportunities
* 2nd MIB (2010-2013) and LNG boom (2013-2018)
Result:
* Led to increased FDI investment as % of GDP from 1.5% (2010) to 4.8% (2018), where FPI decreased from 6.1% (2010) to 0.9% (2018)
* Impact oN BOPS:
* Increased FDI (in) means increased expansion of export industries (e.g. LNG sector) which leads to increased export volumes -> improved BOGS and CA!
STAT:
* BOGS has been in surplus since 2018 and CAS since 2019 (again this stat) and Aus is largest LNG exporter as of 2022
* Can also say 95% of LNG sector is owned by overseas