Re-booting the globalisation of the Australian economy in the wake of the COVID-19 pandemic must be a priority for Australian policymakers if productivity and living standards are to recover according to a new report from the United States Studies Centre.
“A one-in-a-hundred year pandemic is no reason to turn our back on the benefits of globalisation. However, it is an argument for building extra resilience and belatedly increasing pandemic preparedness," says report author, Dr Stephen Kirchner, Program Director for Trade and Investment. "A power outage might be an argument for building a more resilient energy infrastructure, but it’s not an argument against the ongoing benefits of electricity."
Examining the long-run relationship between Australian and US productivity and living standards, the report argues that the openness of the Australian economy plays a key role. “Our open economy means we can import productivity trends from across the globe – particularly from the United States,” Kirchner added
Australia is only the 58th most economically globalised economy on one measure, just above the US at 59th. But, because the US is on the frontier of global productivity, it is not as reliant as Australia on international connectedness for its productivity growth.
- One per cent improvement in Australia’s economic globalisation score raises Australian labour productivity by around 0.3 per cent.
- Australia could enjoy labour productivity gains of up to 9 per cent by matching the level of globalisation found in other economies.
- A one per cent gain in US labour productivity raises Australian labour productivity by 0.95 per cent, indicating that Australia imports productivity gains from the global frontier.
- The report also provides a basis for estimating the labour productivity loss from any reversal in globalisation due to the COVID-19 pandemic.
- If Australia were to return to the level of economic globalisation prevailing in 1976, labour productivity would be around 12 per cent lower, holding other influences constant.
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