Measuring diversification in Australian Goods Exports, 2001-2021: Policy and Technical Considerations

Export diversification has emerged as a significant issue in Australia over the past two years. This paper explores shifts in diversification over time, focusing on trends over the past two decades using a suite of measures.

Geographical export concentration: Unlike in the half century to 2000 when increasing Australian export diversification was linked to new opportunities across East Asia, a range of measures show increasing export concentration since the beginning of the twenty-first century. This reversal is underpinned by China’s growing economic weight and heavy industrial phase of development, which has turbocharged demand for Australian resources. 

This change is not just an iron ore story. Even with iron ore excluded from imports of all of Australia’s major trading partners, China was still the fastest growing market for remaining products, particularly liquefied natural gas (LNG), between 2010 and 2020. The United States was the second fastest.

Product concentration: Product concentration in Australia’s total merchandise exports has increased over time. This applies to our merchandise exports by product to all our major markets. Australian exports are now more concentrated than those of many other countries.

On a range of measures, Australian exports to China have become more concentrated over the past two decades. The biggest increases occurred in the first decade of the century as the contours of the bilateral trading relationship evolved in resources and energy. Increases were markedly weaker in the second decade as trading patterns generally became more settled. Taking the period as a whole, the range of Australian goods exports to China has at best stagnated, notwithstanding that our aggregate share in China’s merchandise imports more than doubled.

At one level, these trends support the well-established narrative of Australia’s strong comparative advantage in mineral resources and (less prominently) in agriculture products. But at another level, the narrowing breadth of Australia’s goods exports to China reflects the fine balance between factors working to increase product range – like rising middle class incomes on demand for more sophisticated goods and services – and factors working in the opposite direction like China’s increasing self-sufficiency in manufactures. This narrowing raises difficult questions in relation to the overall impact of the China-Australia Free Trade Agreement (ChAFTA) on Australia’s export trade. 

READ WORKING PAPER No.12

Authors
Ron Wickes was Director of the Trade Analysis Section of the Department of Foreign Affairs and Trade (DFAT), 1999-2008.
Mike Adams is a former DFAT economist with extensive international trade experience.
Nicolas Brown headed DFAT’s branch responsible for analysis and strategic advice about trade and economic issues, 2003-2008

Photo Credit: Michael Evans