The Australian Economic ‘Miracle’: A View from the North

This paper analyses a variety of aspects of the ‘miraculous’ performance of the Australian economy in the 1990s from an international perspective. We start by considering the conduct of macroeconomic policies, arguing that a mixture of good institutional design and wise decision-making has ensured an appropriate macroeconomic stance, particularly through the turbulent period of the Asian Crisis. This has supported good supply-side performance underpinned by labour market institutions that have proved reasonably flexible and robust trend productivity growth. Although cross-country evidence suggests that the information and communications technology revolution does help to explain the recent international behaviour of total factor productivity growth, it seems to play little role in explaining the remarkably good relative productivity performance of the Australian economy which we attribute to the increased competitive pressure stemming from the past removal of tariff barriers and the low level of regulation more generally. However, the increasing level of external debt and the low level of household savings means that the economy remains vulnerable.