Volume 36, Issue 1-2, 2006

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Articles:

  • Innovation and the Conditions of Economic Progress (J. Stanley Metcalfe)
  • The Welfare Cost of Capital Controls (Tony Makin, Alexander Robson)
  • The New Economy and the Dollar Puzzle (Neil Dias Karunaratne)
  • Determinants of Export Supply of the Australian Textiles Industry (Inka Havrila and Pemasiri Gunawardana)
  • The National and Regional Economic Consequences of Rapid Growth in Australia's Telecommunications Sector (James Giesecke)
  • Economic Evaluation of a Community Based Early Intervention Program Implemented in a Disadvantaged Urban Area of Queensland (Matthew Manning, Ross Homel, Christine Smith)
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Innovation and the Conditions of Economic Progress

J. Stanley Metcalfe

Pages: 1-12

Abstract:
The lecture explores some connecting principles that link Colin Clark's Conditions of Economic Progress to modern capitalism in which innovation continually transforms the system from within. My exploration touches on the meaning of economic progress, the difficulties if treating the tertiary sector as a residual after accounting for the primary and secondary sectors, and some aspects of innovation in the service of economy. The lesson is that policy focusing on manufacturing innovation ignores Colin Clark's insight that we live in the tertiary sector and that innovations in service activities are the key to further advances in our standards of life.

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The Welfare Cost of Capital Controls

Tony Makin, Alexander Robson

Pages: 13-24

Abstract:
This paper examines the macroeconomic implications of capital controls that limit international financial flows to emerging economies. Using extended loanable funds analysis, it first demonstrates how perfect capital mobility contributes to development, contrary to a prevalent view that international borrowing inimical to the economic welfare of developing economies. As a corollary, the analysis then shows that capital controls, irrespective of form, generally reduce development potential and economic welfare by widening real cross-border interest differentials. Capital controls in the form of quantitative controls, such as the Chilean unremunerated reserve requirement system, and explicit taxes on foreign investment flows impose similar welfare losses. However, quantitative controls are relatively more costly than options to tax capital flows, due to revenue effects.

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The New Economy and the Dollar Puzzle

Neil Dias Karunaratne

Pages: 25-43

Abstract:
The revolutionary changes in information technology (IT), globalisation and financial innovation overturned the Solow productivity paradox and spawned a New Economy (NE) in Australia in late 1990s. Both growth accounting estimates and the use of information superhighway rank Australia next to USA as a NE. Australia is an avid user but not a producer of IT that propes the NE. The debate on the need for a new paradigm for the new economy on the grounds that key mechanisms of the old paradigm have become obsolete is reviewed. The breakdown of the short-run Phillips curve trade-off and the redundancy of the long-run speed limits top growth are examined and dismissed as poppycock on both theoretical and empirical grounds. The IT technology, because it is subject to severe diminishing returns and problems of information overload, fails to rank with the great inventions of the past and will not be a harbinger of the Third Industrial Revolution. Nonetheless. on the basis of the "delay hypothesis" the dismissal of the case for a new paradigm for the NE my be premature at this stage. The paper also examines the puzzling nosedive of the dollar during the first half of the year 2001. This occurred despite the strong macroeconomic fundamentals and the emergent NE. The paper concludes by commenting on the policy reaction function for a small open NE committed to inflammation targeting.

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Determinants of Export Supply of the Australian Textiles Industry

Inka Havrila and Pemasiri Gunawardana

Pages: 45-59

Abstract:

This paper analyses the export supply of Australia's textile products. The long-run relative price elasticity indicates that a one per cent increase in relative price of exports will increase textile exports supplied by 1.83 per cent. The estimated long-run elasticity with respect to production capacity implies that a one per cent increase in the production capacity seems to decrease the textile exports supplied by 3.15 per cent. The estimated long-run elasticity with respect to effective rate of assistance shows that a one per cent decline in the effective rate of assistance will increase the textile exports supplied by 1.54 per cent. Since Australia is unable to influence the world price of textiles, further increases in the supply of textile exports seem to depend on domestic policy actions such as reducing the effective rate of assistance to textile industries and consuming reductions of cost of production of textiles, for example by lowering of wage costs through labour market and industrial relations reforms.

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The National and Regional Economic Consequences of Rapid Growth in Australia's Telecommunications Sector

James Giesecke

Pages: 61-97

Abstract:

The Australian telecommunications services sector has experienced rapid growth in recent years, with real output increasing at an annual average rate of approximately 20 per cent since 1996/97. Impetuses to this growth were competition-promoting reforms and the diffusion and introduction of new telecommunications products and technologies. this paper investigates the national and regional economic consequences of the sector's growth over the period 1996/97-2001/02 using a dynamic multi-regional CGE model of the Australian economy. The modelling suggests that the growth of the sector has contributed to a substantial rise in national real GDP and real consumption (by around 2 and 1 per cent respectively). The range of regional real GDP impacts is diverse. In particular, regions, other than the major urban regions are found to have experienced relatively small increases in real GDP as a result of the sector's rapid growth, indicating that the structural and policy changes to which the sector has been subject have contributed to the concentration of economic activity in major urban regions.

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Economic Evaluation of a Community Based Early Intervention Program Implemented in a Disadvantaged Urban Area of Queensland

Matthew Manning, Ross Homel, Christine Smith

Pages: 99-119

Abstract:

Children raised in socio-economically disadvantaged regions have increased probabilities of school failure, delinquency, drug abuse, and juvenile crime. The Pathways to Prevention project attempts to reduce these risks in a disadvantaged community through the implementation of child-focused (school-based) and family focused (community-based) interventions. Preliminary results from an economic evaluation of the Pathways project are reported. Project costs are compared with the costs of a number of remedial interventions. It is not argued that preventive interventions should be favoured over remedial interventions. Rather, investing more in prevention may help alleviate the pressure on the overburdened remedial sector, resulting in potential cost-savings.

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