What exactly does it mean to have a narrow export base? Also, what are the effects of having a narrow export base on the economy? (1 Viewer)

[Thundermaster123]

Still a bit confused as there is not a lot of info available online. Any help would be appreciated!

 

[marhali]

basically not having a wide range of exports e.g. australia has a narrow export base as its mainly exports minerals such as iron. an effect of this is that when the world starts to move to renewable energy, our exports decrease. this might be a wack reply bc i havent done eco since hsc

 

[Thundermaster123]

I didn't quite understand the effect. Could you kindly elaborate @marhali ?

 

[Flise]

Minerals and fuels comprise of over 50% of Australia’s exports, hence the reason why Australia’s export base is considered ‘narrow’ i.e limited. This can be problematic as the prices of commodities like minerals and fuels can be highly volatile (as seen during GFC iron prices fell about 80%? (Double check)), which threatens Australia’s external vulnerability (as a collapse in global demand can lead to decreased export revenue, thereby worsening our Trade Balance and also our CAD.

 

[marhali]

ill try my best! australia's main exports are minerals and metals i.e. non-renewable energy and things that are mined, and since climate change is becoming an issue and other countries are moving towards more eco-friendly, renewable energy sources e.g. solar, wind, etc, less countries are interested in australian exports. since australia has a narrow export base comprised mainly of non-renewables, we should expand our export base so we dont completely depend on minerals for export income bc of what can change in the future. i really dont know if that makes sense but i hope it helped!

 

[marhali]

Minerals and fuels comprise of over 50% of Australia’s exports, hence the reason why Australia’s export base is considered ‘narrow’ i.e limited. This can be problematic as the prices of commodities like minerals and fuels can be highly volatile (as seen during GFC iron prices fell about 80%? (Double check)), which threatens Australia’s external vulnerability (as a collapse in global demand can lead to decreased export revenue, thereby worsening our Trade Balance and also our CAD.

this is a much better response bahahhaah

 

[Thundermaster123]

That helps alot! Thanks @marhali @Flise

 

[Flise]

this is a much better response bahahhaah

I agree with the point that Australia needs to expand its export base to more stable goods/services (which we are attempting to do as services have increased as a share of total exports by 17% to 21%)

 

[sab13562]

Still a bit confused as there is not a lot of info available online. Any help would be appreciated!

Narrow export base means Australia doesn't have a variety of exports. Because of this, if the demand for iron ore for example goes down, export revenue would decrease significantly as Australia heavily relies on this as a source of export revenue. This will worsen the balance on goods and services as it'll decrease in value since the export revenue has decreased, thus causing a worse net primary income and current account balance. A worsened Current account = worsened external stability.

Another thing is because our export base is narrow, we have consistently been in a current account deficit. This is because the exports Australia relies on, such as minerals, are low in value in comparison to value added goods such as machinery and technology which other economies use. You can recommend that Australia expands their export base to increase export revenue which will improve external stability as a result of the process mentioned above, only reverse it this time.

Also, economic growth will suffer if demand decreases for exports since we have a narrow export base. This is evident in the formula AD = c + I + G + X - M, where Ad is economic growth (or aggregate demand if you already know it)and x is exports. This proves that a lower demand for X results in lower export revenue causing a reduction in Economic growth.
Hope that helps!