RBA: Mining Has Added 13% To Household Incomes And There Is No Dutch Disease

Rio Tinto’s Brockman 2 mine.

The RBA released a paper today which has modelled the effects of the mining boom on the Australian economy. The researchers, Peter Downes, Kevin Hanslow and Peter Tulip find that the boom has been felt strongly throughout the economy and that:

it (the Boom) had raised real per capita household disposable income by 13 per cent, raised real wages by 6 per cent and lowered the unemployment rate by about 1¼ percentage points.

The researchers highlight however that is not to say that the boom wasn’t without its costs such as the high Aussie dollar which has, “weighed on other industries exposed to trade, such as manufacturing and agriculture”.

Crucially however “because manufacturing benefits from higher demand for inputs to mining, the deindustrialisation that sometimes accompanies resource booms – the so-called ‘Dutch disease’ – has not been strong. We estimate that manufacturing output in 2013 was about 5 per cent below what it would have been without the boom”, the paper says.

The paper shows the impact on the different sectors of the economy with regard to household consumption. With regard to housing they note “whereas most other elements of consumption are supplied elastically, the supply of housing is relatively fixed in the short run”. Which mans prices for rents and houses rise but the increase in supply takes time as we are seeing now as the RBA leaves rates low.

Overall and on balance the researchers highlight that the net benefit to the globe and to Australia has been strongly positive.

You can find the full paper here

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