Commodity\n boom‐bust\n cycles and the resource curse in Australia: 1900 to 2007

Abstract

The Australian economy experienced very frequent and sizable terms of trade shocks (Bhattacharyya and Williamson, 2011). These shocks at times were more pronounced than commodity exporting developing countries and disproportionately benefited the extreme top end of income distribution (Bhattacharyya and Williamson, 2016). Did they derail overall economic progress? Circumstantial evidence suggest that they did not, but hard econometric evidence appears to be rare. In this paper, I revisit the Australian resource curse question from a long-run perspective. Using time series data on commodity prices, real GDP, real wages, non-farm GDP, manufacturing share of GDP, and manufacturing share of employment covering the period 1900 to 2007, I find very little evidence of a resource curse. Commodity booms in general and positive agricultural price shocks in particular appears to have impacted the rest of the economy positively both in short and long-run. The positive effect is primarily led by expansion in manufacturing. This is perhaps reflective of trade protection, labour and credit market flexibility, and relatively open skilled migration in Australia especially during the post-war period.