Australia’s economy is relying on the mining boom. This article will explain five ways in which Australia’s financial situation is being bolstered by the boom.
Price Changes, Not Volume Changes
The current Australian mining boom is qualitatively distinct from previous mining booms in that it is being driven by an increase in demand, not an increase in supply. As India and China continue to grow relentlessly, they need minerals and other natural resources from Australia. Thus, the mining boom is enriching Australia because of growing profit margins. The Australian economy is able to derive more profit from mining because current fixed capital assets are yielding more and more revenue.
The Financial Markets
The Australian mining boom is, first and foremost, bringing more money into Australia because of the rising price of minerals. However, the mining boom is also benefiting the country’s economy because Australian mining companies are able to enter the financial markets with initial public offerings (IPOs). Thus, Australian mining companies are obtaining capital not only from sales but also from investors. As these companies obtain additional capital, they are able to invest in further capacity, creating the potential for more profit in the future.
The Keynesian Multiplier Effect
The economist John Maynard Keynes noted that, when people have money in their pockets, they tend to spend it, thus improving other sectors of the economy. The mining boom has brought tens of thousands of new jobs to Australia. Mining workers are spending their wages in ways that benefit the Australian economy – for example, by buying goods and services from other Australian companies, and paying higher taxes to the Australian government (which, in turn, is able to make better infrastructure investments and keep improving them position of all companies in Australia).
Paving the Way for Brand Australia
Australian mining companies are generating a lot of goodwill overseas, since they are helping to fuel the economies of China, India, and other countries. The success of Australian mining companies is also responsible for what economists call a halo effect, as other Australian companies are benefiting from a better Brand Australia worldwide.
The Domestic Boom
The mining boom is not only improving Australia’s economic position through exports but also through providing for domestic growth needs. Australia is the fastest-growing economy in the OECD, and the mining boom is helping to provide resources that Australia needs to fuel this growth.
Conclusion
Australia’s future economic prospects are bright. As the U.S. continues to stagnate and Europe remains in crisis, Australia is growing. The country’s mineral wealth is an integral part of Australia’s economic resurgence.
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