The economist describes the definition of a banana republic as “a country dominated by foreign investment and dependent on a single export commodity” (The Economist. 2014). This definition has some correlation to the Australian economy as over previous year’s Australia has experienced a commodity boom which has dominated and under pinned the nation’s economy. The development of the natural resources industry in Australia has grown the economy and has become the number export for the nation (Figure 1). Australia’s reliance on the commodity industry does not support long term economic stability for the nation, commodity prices are falling as the developing world industries slow down. The Australian government must continue with the development of the commodity industry but must also invest into developing new industries that will ensure the economic growth of the nation continues and to ensure the nation is not dependent on the natural resources of the country.
Figure 1: Composition of Exports 2009(Ian McCauley 2012)
In the past the nation has been a significant exporter of agricultural products such as grain and livestock, it was able to make advancements in the manufacturing industry by imposing high tariffs on imported goods. This was until internationally and locally it was not viable to continue with these economic policies and the Australian market was opened up with the lowering of tariffs and the floating of the Australian dollar. While this benefited the economy with free trade agreements, foreign investment and a diversification of the export base it also contributed to the demise of other industries (Sara Cousins 2013). Throughout Australia’s economic history mining and the exports of commodities have been part of the economy, the natural resources of the nation have created a comparative advantage for the country. The comparative advantage Australia has regarding its natural resources has benefited the economy and helped the nation through resent economic down turns such as the Global Financial Crisis. Like previously mentioned industries, this advantage over time will be eroded and the Australian government will need to look to new industries for economic growth.
In the year 2013-2014 investments into resources will be at record levels, the Australian government has assumed that the peak of this industry has not yet been achieved and there is still some growth in the industry (Budget Paper No. 1 2014). As the reliance on this industry continues it has a detrimental effect on the Australian economy, if and when the industry reaches maturity the Australian economy will experience decline. Mining and related industries make up for 9.6% of the nation’s GDP (Figure 2), as this is not the leading contributor to the nations GDP it has consistently risen and is expected to rise by 6 ½ to 7 per cent over the next couple of years(Budget Paper No. 1 2014).
Figure 2: Composition of Australia’s GDP 2011-12 (Australian...