Structural effects of increasing Australia's imports from less developed countries / Peter G. Warr.

Abstract

The trade-off between two effects of reduced Australian protection is studied in this paper. These are, on the one hand, the desired effect of increasing imports from less developed countries (LDCs), and on the other, the politically undesired structural effects of reduced protection, primarily involving reductions in the share of the manufacturing sector in national output and employment. The paper focuses on the decade 1968-69 to 1977-78 and the analysis utilizes the ORANI general equilibrium model of the Australian economy in conjunction with the Australian trade data. It is argued that over this decade Australian protection came to discriminate much more heavily against the LDCs, relative to Australia's other trading partners. Nevertheless, reductions in rates of protection at the individual commodity level have widely varying effects on Australia's total imports from LDCs. These effects are in fact negative in around one fourth of the cases. Of 62 commodities subject to positive rates of protection, a given proportional reduction in the rates of protection of only eight would have a greater effect on imports from the LDCs than that same proportional reduction applied to all 62 rates. Reduced protection of these eight commodities would in addition have much smaller structural effects than an equal across-the-board reduction. Moreover, virtually any undesired structural effect of reduced protection of these eight items could be counteracted by increased protection of one or more of the commodities for which an increase would benefit the LDCs. Show more