ASSESSING THE IMPACT OF PACIFIC ECONOMIC COMMUNITIES ON AUSTRALIA AND NEW ZEALAND
6 EFFECT OF THE PECs ON DOMESTIC MARKETS IN AUSTRALIA AND NEW ZEALAND
An assessment of how the various PECs considered here affect Australia and New Zealand is shown in Figure 6 in terms of GDP per capita for the following cases: A, the
Impact of Pacific economic communities on Australia and New Zealand 5 7
1970 1 995 2020 -0052 1970 1995 2020
Year Year
FIGURE 6 Gross consumption per capita; (a) Australia; (5) New Zealand. The curves refer to the following scenarios: A, reference scenario; B,PEC-1C; C, PEC-3; D, PEC4.
reference scenario; B, PEC-1C (ANZ
+
Japan+
ESEA); C, PEC-3 (PEC-1C+
China+
NORAM); D, PEC4 (ANZ
+
NORAM). The outputs from these cases are labeled as just indicated throughout the rest of the paper unless otherwise stated. For both Australia and New Zealand the PEC-1C community produces the highest standard of living expressed in terms of GDP per capita. All these groupings produce levels of GDP per capita exceeding those of the reference scenario.In an attempt to determine which areas of both economies produce this increased standard of living we shall examine the productive output of individual sectors. The manufacturing sector in both Australia and New Zealand shows a downturn in sales (Figure 7). The major effect on Australian manufacturing industry is brought about by the PEC-1C run where the cheaper labor of ESEA makes this area of the economy much less competitive. Even in the PEC-4 case, where Australian goods at home and abroad only have competition from the manufactured goods of New Zealand and North America, there is a lower rate of production of manufactured goods in Australia relative to the reference scenario. Thls same pattern of development occurs in New Zealand but to a lesser extent than in Australia for the PEC-1C community. The labor-force requirement (measured in man-years per year) of the manufacturing sector in Australia falls to half the number of the reference run by 2020 as a result of the PEC-1C grouping but the total labor force for all sections shows a marginal increase for the same comparison.
Some of the additional labor force is taken up by the energy and minerals sectors in Australia but most jobs are created in the service sector. With the increase in energy pro- duction in the PEC-1C run (Figure 8), jobs are created as a result of the greater exports, particularly to Japan. However, as can be seen from the PEC-3 run this market is not
J.M. Mula, D. MocRoe, K. T. Porker
Year Year
FIGURE 7 Sales of manufactures per year: (a) Australia; (b) New Zealand. The curves refer to the following scenarios: A, reference scenario; B, PEC-1C; C, PEC-3; D, PEC-4.
Year
FIGURE 8 Sales of energy per year by Australia. The curves refer to the following scenarios: A, reference scenario; B , PEC-1C; C, PEC-3; D, PEC-4.
reliable. This arises because the Japanese show a preference for the NORAM market as North America enters the community. A clearer picture of this shift can be seen from a comparison of Figures 9(a) and 9(b). The North American share of the Japanese energy market by 2020 moves from 20% for PEC-1C t o nearly 60% for PEC-3 whereas the
Impact of Pacific economic communities on Australia and New Zealand
1970 1995 2020 1970 1995 2020
Year Year
FIGURE 9 Shares of imports of energy b y Japan: (a) scenario PEC-1C; (b) scenario PEC-3. The curves refer to the following regions: A, NORAM; B, Australia; C, New Zealand; D, European and Asian COMECON countries; E, Other Europe and Asia Minor; F, LACARB; G, South Asia; H , ESEA;
I, China; J, WANA; K, Other Africa.
Australian share falls from I9%(PEC-IC) to 6% (PEC-3) over the same period. In the reference case the share by Australia and North America of the Japanese market by the end of the simulation period (2020) is 18% and 25%, respectively. At the beginning of the 21st century the Australian energy price per unit begins to increase as a result of higher costs of extraction after the easily won coal begins to run out. This produces a situation in the PEC-1C run where the Australian price starts to exceed that prevailing in North America. Thus although North America is not in the PEC-1C community the price difference is enough to cause a downturn in Australian energy production. Mineral production in Australia shows gains for all community arrangements when compared with the reference scenario (Figure 10). The largest gain arises from the PEC-3 grouping.
The grouping of Japan and North America generates larger export markets for Australia, with Japan taking some 65% over the whole period. In the PEC-4 run the effects of the exclusion of Japan from the community are noticeable.
Food production plays a major role in the economies of Australia and New Zealand.
For both countries the PEC-3 run opens up markets in the developed and developing countries, resulting in the highest production levels over all cases. As the petajoule equi- valent of food in Figure 11 shows, a marked increase in quantities produced is apparent.
When expressed in dollars these increases appear even greater. It is interesting t o note that both countries d o increase their production within all of the communities considered here.
This leads t o the conclusion that both Australia and New Zealand would be competitive in their own right owing, in part, to the complementarity of the type of agricultural commodities each produces - Australia with its wheat and beef and New Zealand with its lamb, cheese, and butter.
J.M. Mula, D. MacRae, K.T. Parker
Year
FIGURE 10 Sales o f minerals per year by Australia. The curves refer to the following scenarios:
A, reference scenario; B , PEC-1C; C, PEC-3; D, PEC4.
Year Year
FIGURE 1 1 Sales of food per year: (a) Australia; (b) New Zealand. The curves refer to the following scenarios: A, reference scenario; B , PEC-1C; C, PEC-3; D, PEC4.
Impact of Pacific economic communities on Australia and New Zealand 61
7 EFFECT OF THE PECs ON TRADING BY AUSTRALIA AND NEW ZEALAND Trade plays a major role in countries with small domestic markets such as Australia and New Zealand. However, doubts are raised as to whether such small economies can compete amicably with large economies within the context of economic communities.
Such communities comprising countries with large and small economies and/or large and small populations may encounter problems arising mainly from the size differences between them. T o examine this we now consider the net trade of commodities for Australia and New Zealand.
Of the cases considered here, PEC-1C gives Australia its "best" trade levels. W l e all four cases show that Australia will be a net exporter of energy, food, and minerals, the ranking of these commodities as to which is the largest by the year 2020 changes for each of the PECs considered. In Figure 12(a) the reference scenario shows energy as yielding the largest net exports, followed by food and minerals. In the cases of the PEC-1C run (Figure 12(b)) and the PEC-3 run (Figure 12(c)), however, the food sector emerges as the major exporter. For PEC-4 we see from Figure 12(d) that energy once again tops the list. From Figures 12(b) and 12(c) we also see that some of the declines shown earlier in the production of energy can be attributed to a falloff in exports of energy. Since these figures show net exports the full impact of the loss of energy exports is not fully described here. Australia's major net import continues to be manufactured goods; this reaches some
$35 billion by the year 2020 in the PEC-1C case. This is followed by machinery and natural products. With the access of the domestic market to cheaper manufactured goods, the import of this commodity has detrimental effects on the home industry. Thus, under the assumptions of these cases, it would appear that Australia will remain a primary producer with gains in the output levels generated by the agricultural sector in recent decades resulting from the increasing demand for food following from the increasing wealth of the developing countries in Asia.
New Zealand's net export earners remain the same for all four cases. Food followed by natural products are the main exported commodities. In terms of energy supplies, however, New Zealand moves from being self-sufficient to being a net exporter before swinging downward to the position of a net importer after about 2005. Demands made by its processing and service industries in the PEC-1C case (Figure 13(b)) generate greater energy import requirements than in the reference scenario (Figure 13(a)). This applies to the other cases as well. Although New Zealand can meet its own mineral requirements the demand for imports of machinery and manufactured products is great. This net importing situation is greatest in the PEC-3 case (Figure 13(c)). Using Figure 13(d) we can compare the P E C 4 case with the other cases. In summary, then, New Zealand is also a primary producer for the period of the simulation in all four cases, with energy fluctuating from a situation of net exports to net imports.
Both Australia and New Zealand are endowed with rich natural resources and are well placed to service markets which are less well placed in this respect. Both countries gain appreciably, in the trading sense, from participation in any of the communities con- sidered here. However, when North America is introduced into the community the trade opportunities for these countries are reduced. This arises because North Amercia is well endowed with natural resources similar to those drawn on by Australia and New Zealand.
North America thus competes with these countries for the increasingly open markets of
62 J.M. Mula. D. MacRae, K.T. Parker
-26250 -35000
1970 1995 2020
(c) Year
- 35000
1970 1995 2020
Year
-26250 -35000
1970 1995 2020
(d) Year
26250
-26250 -35000
1970 1995 2020
Year
FIGURE 12 Net trade by Australia under different scenarios: (a) reference scenario; (b) PEC-1C;
(c) PEC-3; (d) PEC4. The curves refer to the following categories: A, machinery; B , manufactured goods;C, energy; D, minerals; E, natural products; F, food.
Japan and ESEA. The impact on Australia's and New Zealand's trading prospects caused by the participation of China in the community is not great, despite its considerable reserves of minerals and energy. Japan is shown to be increasing its energy imports from China. In each case the ESEA region remains a big importer of food from Australia and New Zealand. One of the reasons for this could be that the high trade biases operating at the beginning of the simulation period are hampering a rapid incursion of China's
Impact o f Pacific economic communities on Australia and New Zealand 63
-3500
1970 1995 2020
Year Year
Year Year
FIGURE 13 Net trade by New Zealand under different scenarios: (a) reference scenario; (b) PEC-1C;
(c) PEC-3; (d) PEC-4. The curves refer to the following categories: A , machinery; B, manufactured goods;C, energy; D, minerals; E, natural products; F, food.
commodities into the rest of the Asian region. A more rapid liberalization of trade between China and ESEA and its effects on the other countries would be of interest. In the case of China, however, there are physical and population constraints which would h n d e r any major export drive, particularly in food.
J.M. Mula, D. MacRae, K.T. Parker
8 CONCLUSION
In this paper we have shown how global models can enhance the understanding of national issues. The feedback mechanisms mirror the world interdependence of regions.
Even at this highly aggregated level we have been able to throw some light, in a systematic and quantitative way, on what until now has been a highly qualitative evaluation of Pacific Economic Communities. However, for a more detailed analysis at the national level we feel that joint investigations involving global and national modeling projects could only enhance the ability of economic models t o provide authorative input into policy analysis of the PEC issue.
ACKNOWLEDGMENTS
We would like t o acknowledge the invaluable computing contributions t o this project made by Dr. Phung Tran and Dr. Brian Boutel.
REFERENCES
Mula, J.M. and MacRae, D. (1979). Global economic modelling: some Australian and New Zealand perspectives. In, Proceedings of the Australia and New Zealand Regional Science Association Conference, 4th. Albury-Wodonga, 1979.
OECD (1979). Facing the future: mastering the probable and managing the unpredictable. Interfutures Final Report. Organization for Economic Cooperation and Development, Paris.
Parker, K.T. (1977). Modeling interregional activity by means of trade biases. In, Proceedings of the IFAC-IFORS-IIASA international Conference on the Modeling and Control of National Economies, 2nd, Vienna. North-Holland, Amsterdam.
DISCUSSION
Asked by Steger, Mula and Parker pointed out some o f the difficulties encountered when splitting a national model into regions (for example, in the case of Australia, into New South Wales, Tasmania, etc.). For these regions the balance-ofpayments constraints contained in the model do not apply.
On the suggestion o f the Chairman, a general discussion was taken up.
Asked by Driessen, Mesarovic replied that his model differentiates five different types of land; for each type o f land there are two nonlinear relationships one of which relates capitalization and fertilizer as an input equivalent of the second nonlinear relation which relates fertilizer and yield for different types of crops. These relationships must be physical if one talks about a long-term constraint because this is the only way to estimate
these nonlinearities. In the new version of the Food and Agricultural Model this will be disaggregated in more detail.
Mula asked Mesarovic to classifj, to what extent user's need determined his model.
In reply Mesarovic stated that different user's needs can be met by different versions o f the same model; there is no such thing as the model of the real world. E v e y model is
Impact of Pacific economic communities on Australia and New Zealand 65
designed to answer a specific question or a set of questions. As a modeler one tries to respond to the questions which the user had in mind; however, having his general back- ground, he tries to provide the user with as global a picture as possible (global in both senses: conceptually as well asgeographically). If a modeler wishes to analyze one par- ticular sector more deeply this sector must be disaggregated in more detail than would otherwise be meaningful.
Mula raised the question why the model did not go any deeper into environmental considerations. Was it because there was no demand from the user's side? Mesarovic replied that his model went more deeply into environment than possible users of his model might have demanded; given the overall constraint of manpower and money, however, environment was not treated as thoroughly as he himself would have desired.
Kamrany asked whether or not one of the main purposes of a global model is to bring to the attention of the political and economic decision maker possible constraints in the future.
Mesarovic stressed that models should not aim at making predictions. They should only be regarded as policy-assessment tools, representing merely one part of the total system needed by the user to look into the future. The other part must be provided by the user himself; it consists of ideological andlor political considerations as well as assump- tions about concurrent events. To produce a large number of model runs is only one part of the game; in order to am've at a consistent scenario alternative policies must be added fiom outside the model.
Kamrany pointed out that many models just project past trends without explicit nonnative impacts. Mesarovic agreed that it is a useful exercise to produce at first such
a
"standard run" before going into a more detailed analysis. However, to give an example, a goal like the "new economic order" cannot possibly be depicted by such a standard run. A model should tell that if certain changes take place or if certain policies are imple- mented then these are the likely consequences.
Steger raised the question: How can a model be used by a policy maker interactively if the model serves only as one part of the forecasting process? Mesarovic replied that it is up to the modeler to explain to the policy maker that what he gets out of an interaction, yielding alternative model results within a few minutes, is only part of his decision basis.
Theoretically, political considerations could also be included into the computer model, but this might not render the model more useful for the user.