RDP 9106: The Direction of Australian Investment from 1985/86 to 1988/89 1. Introduction

This paper uses unpublished data to examine the direction of domestic investment during the investment boom that occurred between 1985/86 and 1988/89.

The direction of investment is briefly discussed using aggregate data for the period 1985/86 to 1988/89 in Section 2. Section 3 identifies those industries that contributed most to the investment boom, but unlike earlier papers does so at the individual industry level by using unpublished investment data. We show that the investment boom from 1985/86 to 1988/89 was not as broadly based as previously published data had suggested; in fact 10 out of the total 59 industries accounted for just over three-quarters of the growth in investment over this period. Over one-quarter of the growth in real investment over the period 1985/86 to 1988/89 was carried out by the sector classified as “real estate operators and developers”. Hence Section 4 is devoted to a discussion of this investment.

Section 5 provides a review of recent Australian literature, in particular, studies by Treasury (1988, 1989 and 1990), the Bureau of Industry Economics (1990) and Wood, Lewis and Petridis (1990), which provide often-conflicting evidence on the allocation of investment between the tradeable and non-tradeable sectors. The final section of the paper looks at the share of manufacturing investment that went into the tradeable and non-tradeable sectors (data limitations force us to confine ourselves to an investigation of the manufacturing sector only). Results using our preferred methodology show a modest rise in the share of manufacturing investment going to tradeable capacity in the latter part of the period studied. This increase came entirely from an increase in the proportion of total manufacturing investment in import replacement capacity. The absence of any sign of a shift in the share of capital going into export-creating capacity and the rise in the share going into import-replacement capacity may reflect the lagged response of manufacturers to changes in relative prices.