NATSEM Seminar Series

Re-analysing the Links among Aggregate Spending, National Income and the Trade Balance

Wed 21 February 2018Dr Greg Connolly / 11:00am-12:00pmFishbowl, Building 24, University of Canberra

Click here to view the flyer

Click here to view the presentation



In a 2017 ACE Conference paper, Makin and Ratnasiri claimed to have provided econometric evidence that, for seven “external deficit prone” OECD countries (including Australia), an increase in aggregate spending leads to a one-for-one reduction in the international trade balance.

However, my analysis reveals that the basic formula they used to estimate these relationships can lead to a severe downward bias in the estimate of the true relationship between aggregate spending and the trade balance.

Next, I show that when this estimation method is applied to other countries, including those with persistent international trade surpluses such as Germany and Japan, the same result as for the first seven countries is obtained. This raises unanswerable questions such as: from where are the missing imports coming?

Next, I provide two alternative estimation methods that can be used to overcome this downward bias. I then show that on average for Australia, an increase in aggregate spending is associated with only a relatively small reduction in the trade balance.



Dr Greg Connolly is currently a Research Associate with the Centre for Labour Market Research while he undertakes a short informal sabbatical at the University of Canberra. He also has a long experience of working as an economist in several agencies in the Australian Public Service.  

Greg has a Ph.D. in Agricultural Economics from the University of New England in Armidale, NSW. In addition to agricultural economics, he also conducts research in labour economics and macro-economics.

This event is free to attend. You are welcome to forward this invitation to any interested guests.


Back to NATSEM Seminar Series