Chinese Resource Demand and the Natural Resource Supplier

Abstract

This paper provides empirical evidence on the effects of Chinese resource demand on the resource rich natural resource supplier using the example of Australia. A structural VAR model is used to examine the effects of Chinese resource demand, commodity prices and foreign output on the macroeconomy with a formally specified mining and resources exports sector. The key findings of the paper are that shocks to Chinese demand and commodity prices result in a sustained increase in commodity prices and mining investment and a positive impact on the resources sector. However, these shocks eventually lead to lower real domestic output with factors of production moving out of the non-resources sectors and into the resources sector, resulting in a fall in non-resource sector output which is not fully offset by the rise in resources sector output. The results also indicate some market power by the natural resource supplier.

The sectorial impact of commodity price shocks in Australia

“…The responses of the domestic variables to a commodity price shock are consistent with those presented in Dungey, Fry-Mckibbin and Linehan (2014).…”

The Sectorial Impact of Commodity Price Shocks in Australia

“…The second group of variables represents the Australian economy and builds on the models of Dungey and Pagan (2000), Lawson and Rees (2008), Vespignani (2013) and Dungey, Fry-Mckibbin and Linehan (2014).…”

“…Following Jääskelä andSmith (2011) andDungey, Fry-Mckibbin andLinehan (2014), non-farm GDP is used, as farm GDP can suffer from extreme short-term volatility due to weather effects. In order to analyse industry specific responses, the variable ‫ܲܦܩܣ‬ ି௧ is defined as Australian GDP minus the GVA of industry i.…”

“…4 The start date coincides with the start of inflation targeting by the Reserve Bank of Australia. Dungey and Pagan (2000), Jääskelä and Smith (2011) and Dungey, Fry-Mckibbin and Linehan (2014), while also integrating the methodology of analysing specific industries, as in Lawson and Rees (2008) and Vespignani (2013).…”

Surfing Through the GFC: Systemic Risk in Australia

“…The mining companies have experienced particularly strong growth since the 1990s, albeit with some slowdown towards the end of the sample due to declining Chinese demand and reduced confidence in commodity exports associated with the GFC in 2008; see Roache (2012). The importance of the mining sector, and Chinese demand in particular, is documented in Plumb et al (2013), Dungey et al (2014c). In 2012, the mining sector outstripped the contribution of manufacturing to Australian output, at just over 7% of GDP, rising further to 8% in 2014.…”