A Semi-Input-Output Analysis of Australian Comparative Advantage

The pursuit of indiscriminate protectionist policies has undermined Australia's comparative advantage and contributed the current economic malaise. This paper surveys the theories that identify the determinants of comparative advantage and these theories have been used to provide empirical insights on Australia's potential comparative advantage. It is revealed that a major limitation of past studies has been the neglect of the complementarity between tradeable and non-tradable sectors in the economy. In order to overcome this limitation, this study uses the semi-input-ouput (SIO) criterion to dichotomise the economy's sectors into tradable and nontradable and thereafter using the SIO criterion identifies the tradable sectors with the highest comparative advantage. Such an identification of potential comparative advantage is invaluable for design of policies to promote trade in Australia