Topic 12: Australia & The China Boom

Question 1

Why is Australia a lucky country?

Answer 1

• Stable democratic institutions & tech inherited rather then aquired through civil war
• Abundant accessibile minerals & coal
• Proximity to a region that would dominate world growth (minerals are expensive to transport)

Question 2

List Australia’s pre 21st century mining booms

Answer 2

• SA Copper in 1840, Then Victorian & NSW gold in 1850’s, both near cities
• WA gold 1890’s, first of the outback mines
• Iron ore exploration from 1960’s, thanks to the end of export embarge & of WA reluctance to allow mining).
• Thermal coal exports start in 1973 & 1979 with petroleum price hikes

Question 3

In Australia, why was there little mining, and a rapid growth in manufacturing over 1920-70?

Answer 3

Policy is a major contributer

• Growth of manufacturer protection
• Ban on iron ore exports 38-60
• WA Gov unwilling to issue leases for prospecting or mining

Question 4

What are the three stages of a export price driven boom?

Answer 4

• Initial price rise; generates additional income but not much GDP
• Investment stage; further adds to expenditure but is a lagged due to approval, regulatory deals
• Export stage; mineral prices tend to be on the decline, the exporting furthers this

The takewawy is that approval & gestation delays increase commodity p[rice volatility

Question 5

How can we model the an export price driven boom in the graphical modeL?

Answer 5

Stage 1: NM curve shifts left, Households save less (Y_F^e increases)

Stage 2: Investment shock - r_c^e increases due to optimism over returns

Stage 3: Supply side shock from increased capital shifts NFI left, m_D right - NM is ambigous as the increased exports is a shift left.