Abstract
1. The purpose of this paper is to investigate whether the exchange rate affects the export competitiveness of primary commodities in Australia.2. As there is no single definition of export competitiveness, this paper treats export share expansion in the world market as export competitiveness. This paper mainly focuses on exchange rate and price level as factors affecting export share. Export performance is observed through the RCA (Revealed Comparative Advantage) index and CMS (Constant Market Share) analysis. The RCA index reveals whether a country has a comparative advantage for certain products. CMS analysis decomposes export change into four factors: (1) increased world demand; (2) increased market demand; (3) increased demand for each product; and (4) residual factor (regarded as the competitive factor).3. The analysis is conducted on Australian export data from 1970 to 1992. The RCA index indicates that primary commodities, such as milk, textile fibres and metalliferous ores, have a greater comparative advantage than cheese, textile yam, fabrics, made-up articles, iron and steel and non-ferrous metals. With the results of CSM analysis, export increases in primary products are mainly explained by world demand and market demand. However, from 1979 to 1985, a period of exchange rate devaluation, the competitive factor accounts for a greater proportion of increased exports.4. To examine whether exchange rate fluctuations affect the export competitiveness of Australian primary commodities a regression analysis is conducted. The real effective exchange rate (REER) and the domestic price index of each commodity are explanatory variables. The RCA index and the competitive factor of each product are dependent variables. The products are categorized into three types by the regression analysis: (1) those where exchange rate depreciation contributed to export expansion; (2) those where exchange rate appreciation contributed to export expansion; and (3) those where exchange rate and price level were not factors in export expansion of the product.5. Case (1) supports the conventional view, but cases (2) and (3) are against it. As for case (2), it is pointed out that there is a possibility that intermediate inputs are mostly imported so the appreciation reduced the cost of production. In case (3) non-price factors are more important than price factors in explaining the export expansion.
