The Sectorial Impact of Commodity Price Shocks in Australia

Abstract

It is found that commodity price shocks largely affect the mining, construction and manufacturing industries in Australia. However, the financial and insurance sector is found to be relatively unaffected. Mining industry profits and nominal output substantially increase in response to commodity price shocks. Construction output is also found to increase significantly, especially in response to a bulk commodities shock, as a result of increased demand for resource related construction. Increased demand for construction has a positive spillover effect to parts of the manufacturing industry that supply the construction sector with intermediate inputs, such as the non-metallic mineral sub industry. In contrast, other manufacturing sub industries with only tenuous links to the resources sector such as textiles, clothing and other manufacturing, are relatively unresponsive to commodity price shocks.

The Trickle‐down Effect of the Mining Boom in Australia: Fact or Myth?

“…Again, this may not necessarily reflect income or wealth effects and might simply be caused by the booming machinery, equipment and metal industries, which are major suppliers to the mining sectors. This finding is comparable with that of Knop and Vespignani (2014), who report that a 1 per cent bulk commodity price shock causes production of non-metallic mineral products, machinery and equipment to increase significantly, whereas other manufacturing subsectors remain mostly unaffected.…”

“…Dungey et al (2014) show that Chinese demand for Australian resources resulted in higher commodity prices and investment in the resources sector in Australia but had negative effects on the non-resources sectors. Knop and Vespignani (2014) report the co-movement in mining, construction and part of the manufacturing sectors as a result of a commodity price shock.…”

The Industrial Impact of Economic Uncertainty Shocks in Australia

“…This study develops three separate models, each containing a different industry measure (either investment, output or employment). In-line with previous industrial Australian SVAR studies (Lawson & Rees 2008;Vespignani 2013;Knop & Vespignani 2014;Manalo, Perera & Rees, 2015), the models are estimated one industry at a time.…”

“…10 In addition, Dungey & Pagan (2000), Vespignani (2013) and Manalo, Perera & Rees, (2015) use an export-weighted quarterly real GDP growth of Australia's major trading partners as a measure of foreign output. Similarly, Knop & Vespignani (2014) develop proxies for the world economy using Australia's five largest trading partners, but instead of being export-weighted, they use total trade-weights.…”

Oil and Iron Ore Price Shocks: What Are the Different Economic Effects in Australia?

“…A number of empirical studies have investigates the repercussions of oil price shocks on macroeconomic variables for the United States or across a set of countries, in which Australia is only examined as a comparison case (see, for example, Baumeister et al, 2010;Peersman & Van Robays, 2012). Other studies are concerned with the macroeconomic effects of commodity price fluctuation, which is closely related to changes in Australia's terms of trade over the years of the mineral boom (J€ a€ askel€ a & Smith, 2013;Bjørnland & Thorsrud, 2014;Dungey et al, 2014;Knop & Vespignani, 2014). Earlier work at a more disaggregated level can be found in Ratti and Hasan (2013) or Tcha and Wright (1999).…”