Australian agricultural exports: Perspective exchange rate, trade balance, and environment

Australian agricultural exports: Perspective exchange rate, trade balance, and environment

Increase of agricultural output and export is an important prerequisite to maintaining the economic growth of a country. The prospect of Australian agriculture is considered very bright because of its natural endowments. Assessment of the export potential of Australian agricultural products and their probable environmental consequence have not attracted much attention of the researchers so far. So the issues are still less investigated. Therefore, this thesis has investigated empirically some broad theoretical issues in case of Australian agro-forest and fish (AFF) exports which are the validity of famous Marshall-Lerner (ML) condition, Orcutt (1950) hypothesis, price and exchange rate elasticities, ramification of trading agreements, and the impact on Australian environment and of global climate change. This research is a thesis by publication; hence thesis chapters are constructed by articles and every paper has its own independent style, data period (mostly 1988-2022) and research techniques. In the first paper, to determine the impact of exchange rate on the agricultural trade balance (TB), we have applied the linear autoregressive distributed lag (ARDL) model to estimate the ML condition. The findings support the ML condition in case of the major share of Australian AFF trade. The implication of this finding is that if the market force depreciates the real exchange rate, Australian AFF products TB may improve in the long-run. Similarly, to examine the recent high volatility for Australian exchange rate on the overall AFF TB, we examined the validity of Orcutt (1950) hypothesis in the second paper. It is found overwhelming support in favor of his claim for the AFF products trade between Australia and her top five trading partners. The results reveal the sheer dominance of exchange rates over relative prices in the agricultural trade flow of Australia. Policy implication of this finding is that if Australia intends to improve AFF sector TB, instead of domestic price level, nominal exchange rate manipulation would be a better option. In the third paper, we have delved and analyzed the impact of AFF trade on the Australian environmental condition. Both linear and non-linear ARDL model is applied to discern the asymmetry impact on environment. The findings reveal that improvement of the AFF TB is harmful for Australian environment, and AFF import related economic activities are environmentally more efficient than AFF export related activities. The fourth paper focuses on the impact of trading agreements on Australian AFF exports. In the last two decades, Australia has joined approximately two dozens of trading agreements. Our results reveal that “trade diversion” and “trade creation” have been occurred due to those bilateral and multilateral trading agreements for Australian AFF products. This may have a positive impact in the short-run but could have negative consequence in the long-run since AFF commodity trade is perilously lopsided to a few countries due to trading agreements. Likewise, the fifth paper has attempted to shed light on identifying the relative importance of domestic and foreign price levels, and real exchange rate as major determinants of AFF exports. Our investigation shows that bilateral real exchange rate, Australian export price levels, and importing countries import price levels are the key determinants of Australian AFF commodity exports. Another major finding of the paper is that similarly to theoretical prediction, trade elasticities are higher in the long-run than in the medium-run, and higher in the medium-run than in the short-run. In the sixth paper, we have reviewed and assessed the impact of climate change on the Australian AFF exports. Our results have manifested that rapid global warming or climate change has negatively affected Australian AFF export growth. Specifically, environmental degradation and average yearly temperature increase of Australia triggered by the exponential growth of CO2 emissions have empirically negative impact on Australian AFF export growth. Finally, all these research findings above have important policy implications for Australia and all other countries in the world particularly with respect to the agricultural commodity trade.

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