Impact Of Exports On Gross Domestic Product: A Case Study Of Australia

Background of the Study

This study will illustrate the impact of exports of products on gross domestic product of a country. This study will consider the Gross domestic product of Australia and their export behaviour.  The study will analyze relevant scholarly articles and peer reviewed journals to prove the existing theories.

1.1 Background of the study

Gross domestic product represents the economic growth of the country as identifies the trade activities and time span of activities.  The national income of a country is used to calculate the gross domestic product of the country. As stated by McCombie and Thirlwall, (2016), increase in exports will have a positive impact on gross domestic product and vice versa. However, the short-term impact of exports on gross domestic product will be different when compared to the long-term impact of exports.  The economic structure of an economy will determine the way in which the export will influence the gross domestic product. There are various elements of exports, which if changed there will be changes in pattern of gross domestic product. Australia has been one of the largest exporters of agricultural products, which includes livestock and wheat. Thus, the production cost in the country is less and is least in the production of grains.  Endowments patterns are influenced by the factors such as climatic change. The change in climate will affect the production of agricultural products, which means that adverse effect of climatic condition will diminish the value of Australia as an exporter (Belloumi, 2014). This shows that fluctuation in the endowment factors can have both positive impact and negative impact on the gross domestic product of Australia.

The study is aiming to identify the impact of exports on the economy of a country. The different elements of export will have a positive or negative impact on the different elements of Gross domestic product. The study will investigate how the elements of exports are affecting the factors of gross domestic product. The impact of GDP is different in different countries as it depends on the economic setting and the study will specifically identify the influence in the Australian context.

Research objectives

• To identify the impact of exports on Gross Domestic Product
• To evaluate the different elements of export affecting Gross Domestic product

H₀ – Exports does not have any impact on Gross Domestic Product

H₁ – Exports have impact on Gross Domestic Product

• What is the impact of exports on Gross Domestic Product?
• What is the significance of exports on Gross Domestic Product?
• What are the different elements of exports?
• What are the different factors affecting Gross Domestic Product?
• What is the impact of factor endowment on Gross Domestic product?

2.0 Literature review

2.1 Exports

As stated by Ajmi et al., (2015), exports can be defined as the goods leaving the country by depleting the natural resources. Exports of goods play a vital role in growth of an economy as it contributes to the national income.  Exports will increase the opportunity of employment and account deficit of a country. The developing countries have been using exports to enter the global market and globalization has helped various economies in increasing their market share globally.

Literature Review

Manufacturing cost

Manufacturing cost will determine the amount of export a country can make. The decrease in manufacturing will increase the export quantity especially for developing countries. The foreign will acquire products at cheaper cost due to the less cost of manufacturing for the product (Dritsakis & Stamatiou, 2017). This shows that inverse relationship between manufacturing cost and exports of the country. These consist of various factors such as cost of raw materials and cost of labours.  When production cost increases, there is decrease in market competitiveness for that country. Trade relations are developed based on import and export activities and countries rich in resources use it to their advantage to monopolize the market.

Climatic change

The change in climate generally affects the countries exporting agricultural products to the different countries. The adverse changes in the climatic condition will decrease the production volume, which increases the demand. However, due to the decrease in production volume, there will be fewer amounts of exports, which will add less value to the national income of the country (Costinot, Donaldson & Smith, 2016). Therefore, the country having abundance of resources in a particular department will be focused on protecting the resources form adverse climatic conditions. On the contrary, increase in exports increase the contamination of surrounding environment. Thus, with increase in exports, there will be short-term increase in the gross domestic product of the country but in a long-term perspective; there will be decrease in exports. This is mainly due to the increase in operational barrier.

As stated by Van den Berg, (2016), Gross domestic Product defines the market value of all the goods in a given point of a time in a country. Therefore, GDO is the indicator of health and size of any country. GDP includes income from all the sector and nothing is subtracted from it. GDP can be divided into two factors such as Real GDP and Nominal GDP. The real GDP measures the prices of the product that is being produced in a country. The nominal GDP will consist of the monetary value of the goods which changes depending upon the changes in the original prices of the goods.

Currency exchange fluctuation

The exchange value of currency fluctuates most of the times and the country having stable exchange value are having a string economic setting. However, in most of the time countries purposefully depreciates their monetary value to facilitate their export. As stated by Aldcroft, (2017), appreciation in currency will decrease the export levels and increase imports of the country. However, fluctuation in currency exchange rates will determine the underlying economy of a country.

Exports

Factor Endowment

The factor endowment theory states that different countries will have abundance resources in different areas. This defines comparative advantage in the global market. The heavy endowed goods in a country will provide the economy with boost. Thus, most of the countries focus on the abundant resources for improving market economy (Ju, Lin & Wang, 2015). The country having abundance in capital to labour should be more efficient in developing technological products rather than agricultural products. Thus, identify the resources for gaining comparative advantage effective utilization of resources is required.

The amount of exports of any country will have an impact on the growth of the economy. Exports are an essential component of GDP and GDP can be denoted as GDP= consumption spending +investment+ government spending + (exports -imports) (Farhani & Ozturk, 2015). This equation shows that if the export component increases there will be increase in the GDP of the country. Moreover, foreign trade is an important component of comparative analysis where trade deficit signifies decrease in GDP and trade surplus signifies increase in GDP.

Mackey and Gass (2015) stated that research philosophy highlight the source from which knowledge regarding the research can be obtained. There are three types of philosophies- positivism, interpretivism and realism. Positivism shows the factual data based on research; whereas interpretivism focuses on the social belief based on the research topic. Positivism when combines with interpretivism, it refers to realism. In this research, interpretivism is considered as the qualitative data collected is collected for the research which is used to describe the objectives that is whether or not there is any impact of the export made by the Australia on the GDP of the nation.  

Deductive and inductive are the two types of research approach (Neuman, 2013). Research question are first developed and the data collected are analyzed to answer those questions in deductive approach. In inductive approach, data are first collected and analyzed to find new direction in a research. In this research study, deductive approach is utilized as the data collected obtained is analyzed to address the impact of export on GDP of Australia.

Exploratory and descriptive are two research purposes used in research study. Flick (2015) stated that when new theories are explored from data, exploratory purpose is used; whereas when the objectives is described through the findings of the research, descriptive purpose is followed. In this research, descriptive purpose is followed as the research objectives are described through the obtained data from survey.

3.4 Data Collection Method 

Manufacturing Cost

Data are collected through two ways- primary and secondary process. Panneerselvam (2014) stated that primary data are collected directed from research respondents through survey, interviews and questionnaires. Moreover, when research papers, articles, websites and journals are considered to obtain data, this process is known as secondary data collection. In this research, secondary data collection is utilized to obtain data based on research question. The selected secondary sources are taken from the government site of “Australia Bureau of Statistics” for characteristics of Australian exporters and GDP growth report published by The World Bank.

Primary and secondary data are analyzed through quantitative and qualitative data analysis techniques respectively (Smith, 2015). In this research study, quantitative analysis method is used. The obtained data is analyzed through regression analysis and the data is evaluated in Microsoft Excel.

Bryman and Bell (2014) stated that the selection of samples for a research is done through two different ways- probability and non-probability sampling technique. Probability sampling technique refers to the situation when respondent get equal chance to participate in a research (Neuman, 2013). On the other hand, when selective respondents are selected, non-probability sampling technique is used. In this research, non-probability sampling technique is used as only two websites are considered as sources to obtain the data. 

All the reports considered are based on the details of GDP growth for Australia and export reports that is done from Australia. These data are not manipulated and the exact situation is written in the report.  

This research only considers secondary data that does not represent the current situation and illustrate only outdated data. Moreover, the research outcome only illustrates the scenario of Australia and hence not applicable on an international level.

Trade policies of a nation are important for boosting the economic growth.  Australia is country having an open market and has developed free trade.  The free trade has made it possible for the country to grow steadily in the past decade where they never had to face recession.  GDP reflects the economic growth a nation and various sources suggest that Australia has experienced steady economic growth of around 3.2% in the last decade (Tang, 2017). Trade liberalisation has been instrumental in developing trade relationship with various neighbouring countries in Asia. Exports have made strong performance in the past fiscal year after dip in export volumes in the year of 2015.  The Australian economy has become dynamic and flexible only because of their openness in the market. Multilateral, unilateral and bilateral are the different forms of trade liberalisation, which has been steeping for Australia’s stable economic growth. Trade liberalisation has reduced the amount of the risk in the global trade market by incorporating free trade and reducing restrictions on imports (Abs.gov.au, 2018). There is a positive relationship between exports and Gross domestic product in Australia.  

Climatic Change

The tables below represent the value range of exports from the fiscal year of 2006 to 2013 and from the year of 2014 to 2016.  The graph represents the Gross domestic product fluctuation for the last 50 years (Abs.gov.au, 2018).  The comparison of the tables and the graphs shows the increase in exports have increase in Gross Domestic product in that particular year and vice versa. The graph shows that in the year of 2012, there has been decrease in the export quantities and the graph shows the same thing that there has been a steady decrease in GDP.  Therefore, the corresponding GDP value for exports in each year shows a clear pattern (Data.worldbank.org, 2018).  This pattern shows that there is positive correlation between exports and gross domestic product.

Value of Exports		2006-07	2007-08	2008-09	2009-10	2010-11	2011-12	2012-13
		$m	$m	$m	$m	$m	$m	$m
Value of each business’ exports	Number of Export Transactions
$100m or more
	1 to 2	np	–	–	–	np	np	–
	3 to 10	np	1,731	1,628	1,742	np	np	2,416
	11 to 20	3,114	3,217	3,428	3,900	4,749	4,936	4,624
	21 to 50	9,337	10,250	16,681	11,133	14,071	17,437	14,185
	51 or more	116,653	127,202	170,266	147,704	189,278	202,619	188,466
	Total	131,960	142,400	192,003	164,478	209,912	226,813	209,692
$1m and less than $100m
	1 to 2	np	711	602	307	431	342	291
	3 to 10	np	1,842	2,148	1,563	1,685	2,067	1,755
	11 to 20	1,685	1,907	1,454	1,502	1,164	1,524	2,140
	21 to 50	3,250	2,978	3,069	3,106	2,925	2,754	2,839
	51 or more	25,645	27,087	27,595	25,915	25,747	26,626	26,339
	Total	32,309	34,525	34,868	32,393	31,952	33,314	33,365
$100,00 and less than $1m
	1 to 2	235	253	288	249	248	270	283
	3 to 10	681	708	753	711	728	753	771
	11 to 20	634	669	695	637	625	647	632
	21 to 50	962	974	924	937	942	923	906
	51 or more	648	662	632	656	647	638	660
	Total	3,160	3,266	3,292	3,190	3,189	3,231	3,252
$10,000 and less than $100,000
	1 to 2	211	209	223	215	218	215	227
	3 to 10	298	299	294	290	295	298	292
	11 to 20	78	76	71	75	77	74	70
	21 to 50	19	18	15	17	np	np	np
	51 or more	3	3	3	3	np	np	np
	Total	609	605	606	600	610	607	610
Less than $10,000
	1 to 2	54	54	53	53	np	np	55
	3 to 10	7	6	6	7	np	np	6
	11 to 20	–	–	–	–	–	–	–
	21 to 50	–	–	–	–	np	np	np
	51 or more	–	–	–	–	np	np	np
	Total	61	60	59	60	60	61	61
Total Goods Exporters (a)
	1 to 2	854	1,227	1,166	824	1,154	1,293	856
	3 to 10	5,217	4,586	4,829	4,313	4,324	4,536	5,241
	11 to 20	5,511	5,869	5,648	6,113	6,616	7,181	7,467
	21 to 50	13,568	14,220	20,689	15,193	17,955	21,131	17,947
	51 or more	142,949	154,954	198,496	174,278	215,675	229,886	215,469
	Total	168,099	180,856	230,828	200,720	245,724	264,027	246,980

Table 1: Exports in terms of value range

(Source: Abs.gov.au, 2018)

Value of exports		2013-14 (TAU)	2014-15 (TAU)	2015-16 (TAU)
		$m	$m	$m
Value of each business’ exports	Number of Export Transactions
$100m or more
	fewer than 3	–	–	–
	3 to 10	2,168	881	891
	11 to 20	2,989	4,259	2,290
	21 to 50	8,351	8,597	11,722
	51 or more	219,957	198,098	183,816
	Total	233,466	211,835	198,718
$1m and less than $100m
	fewer than 3	339	414	518
	3 to 10	1,349	1,314	1,480
	11 to 20	1,664	1,790	2,200
	21 to 50	3,169	3,665	3,280
	51 or more	28,954	31,266	32,687
	Total	35,475	38,450	40,165
$100,000 and less than $1m
	fewer than 3	284	357	375
	3 to 10	794	854	888
	11 to 20	644	670	765
	21 to 50	916	967	995
	51 or more	645	683	741
	Total	3,282	3,531	3,764
$10,000 and less than $100,000
	fewer than 3	248	265	283
	3 to 10	298	306	317
	11 to 20	70	73	77
	21 to 50	15	17	20
	51 or more	3	3	3
	Total	634	665	701
Less than $10,000
	fewer than 3	57	63	65
	3 to 10	6	7	8
	11 to 20	–	–	–
	21 to 50	–	–	–
	51 or more	–	–	–
	Total	63	71	74
Total Goods Exporters (a)
	fewer than 3	928	1,099	1,242
	3 to 10	4,615	3,362	3,584
	11 to 20	5,368	6,792	5,332
	21 to 50	12,451	13,247	16,018
	51 or more	249,559	230,050	217,247
	Total	272,921	254,551	243,423

Table 2: Exports in terms of value range

 (Source: Abs.gov.au, 2018)

The different factors that affect GDP are climatic condition, manufacturing cost, trade policies and geographic location. Climatic condition has a deep impact in a country like Australia, as it one of the largest exporters of agricultural and livestock products.  This is a sole reason that the government environmental laws are strict and active in protecting the environment.  Similarly, mining and mineral exports are also affected due to the changes in the climatic conditions. The changes in the climatic condition will affect the production and the contribution of exports in GDP will be less.

Manufacturing cost affects the export volumes, which in turn will affect the GDP.  Various countries will try to import products from other countries if the cost of manufacturing is low in the other country.  The cost of manufacturing is affected by other constraints in the market such as shortage of labour and less availability of the resources. Therefore, if the cost of exports increases other countries will search for a better option in the market.  Thus, the export volumes will decrease which will significantly decrease the GDP of a country.

Geographic location will similarly have a considerable impact on export volumes as countries like to trade with countries with convenient and less expensive route of travel. Australia has been able to develop free trade relation with Japan, China and South Korea because of this reason. This has been able to boost the economy of the country and increase their amount of export volumes in the past few years.

Currency Exchange Fluctuation

Development of effective trade policy is essential for bring about growth in the economy. Australia has developed a free trade policy, which enables it to free import and export goods with various countries such United States, United Kingdom, Japan, China and South Korea.  Australia has been known for maintaining a steady growth in their economy due to their economy, which can be understood by the high disposable income of the population.  There has not been consecutive negative dip in the economic growth of the country, which shows the stability of the economy. Thus, it can be said that there is positive relationship between export and gross domestic product of Australia. However, this analysis based on secondary data so there are limitations attached to it, which could have been overcome by using multiple design.

SUMMARY OUTPUT
Regression Statistics
Multiple R	0.769223119
R Square	0.591704206
Adjusted R Square	0.540667232
Standard Error	150.0378891
Observations	10
ANOVA
	df	SS	MS	F	Significance F
Regression	1	260988.6547	260988.6547	11.59363806	0.009292317
Residual	8	180090.9453	22511.36816
Total	9	441079.6
	Coefficients	Standard Error	t Stat	P-value	Lower 95%	Upper 95%	Lower 95.0%	Upper 95.0%
Intercept	37.76233601	363.8871046	0.103774867	0.919902423	-801.3628312	876.8875032	-801.363	876.8875
X Variable 1	4.313061899	1.266705983	3.40494318	0.009292317	1.392032666	7.234091132	1.392033	7.234091
PROBABILITY OUTPUT
Percentile	Y
5	927
15	1050
25	1055
35	1140
45	1205
55	1345
65	1390
75	1460
85	1530
95	1560

Regression analysis is conducted to identify the nature and degree of relationship between the independent and dependent variable.  Multiple R is the correlation coefficient, which will highlight the nature of relationship. The value of multiple R is 0.769223119, which means that there is positive relationship between imports and gross domestic product. The value is almost equal to 1, which signifies positive correlation. If the value of R is greater than 0.8, it signifies that goodness of fit is not high and majority of the values are not falling with the regression line.

R² represents the coefficient of determination, which defines the explaining capability of the independent variable on the dependent variable. The value of R² is 0.5917, which means that 59.17 % of the independent variable can be explained by the dependent variable. The remaining 40.83% variation occurs due to uncertainty, which is quite expected in practical studies of this nature.

The F- value is used to reject the null hypothesis taken in the study and in this study, the F value is 0.009292317. The F-value is less than 0.05 so null hypotheses can be rejected and alternative hypothesis has been accepted.  The regression equation is y = 4.3131x + 37.762, which signifies the positive relationship as the slope is positive.

Conclusion

The data analysis from the secondary sources illustrated that there is a positive impact of the export on the Gross Domestic Product (GDP). It has been found from the graphs present in the Australia Bureau of Statistics that in those years when greater exports were made, the GDP of the nation Australia increased. On the other hand, those years, when the exports are not high, the GDP of the nation diminished. The value of the regression is 0.009292317. Since the value of regression is found to be lesser than 0.05, it is said that there is a relationship between the two research variable that is export and GDP. Moreover, the value of R Square is 0.5917 that shows that the dependent variable, which is ‘export’ define the independent variable, which is ‘GDP’ by 59.19%. Thus, the research found the impact of 59.19% of export on the GDP of a nation.

It is fond from the Literature review that ‘manufacturing cost’ and ‘climatic change’ are the two factors of export that affects the GDP of a nation. The lesser is the manufacturing cost, the greater will be the export from a nation. Moreover, in an agricultural nation like Australia, climate affects the crop production, which furthermore influences the total production for exporting.

References

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