The Role of Price and Non-price Factors in Predicting Australia's Trade Performance

Abstract

 Using quarterly data for March 1988 to June 2005, this paper investigates the role of price and non-price factors in predicting Australia’s trade performance in 34 manufacturing industries at the two-digit level. While our results tend to suggest that Australia’s trade performance is influenced by both price and non-price factors; the non-price factors, particularly R&D and FDI, are crucial in a larger number of industries both in the short-run and long run. The policy implication of this is that there are dividends in terms of improved trade performance by increasing R&D expenditure and FDI in the manufacturing sector as well as reducing effective rates of protection and implementing appropriate policies that would increase price-competitiveness of Australian manufacturing industries.
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Keywords: Trade performance, price and non-price factors, relative price, R&D, FDI, effective rate of protection, Australia. JEL Classification Codes: F1, F11, F14 and F17