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Concept of Structural Change

Economics (Year 12) - Structural Change

Christian Bien

What is it?

Structural change is the economic changes in income, employment and output across different industries, states or sectors over time. They change due to the evolving technologies and different demands and changing structure of the world economy.

Causes of Structural Change

Changing Societal Factors

Changes in our household structures and life expectancy have played a significant role in structural change. Children are being brought up in households where both parents are working. This has led to rising demand for services such as child care and home maintenance services. Our increasing life longevity has also seen a rising ageing population, increasing demand for health and aged care services.

Rise in Australian Incomes

Australian incomes have been rising to the high level that they are today. Higher incomes have changed what goods and services that Australians demands. Australians have been in more demand for services such leisure and holidays and higher end goods to which they can afford with higher incomes.

Technological Change

Australia used to be an isolated country to which most goods and services were manufactured within the country. Advances in transport have made it more possible to transport goods more reliably, faster and more cost efficient. This is one of the causes of the gradual decline of manufacturing in Australia as better access to cheaper imports led to the reduced need for Australian manufacturing. Advances in communication, such as ICT, has allowed Australians to better access international markets and better sell exports to the world market. The internet has also led to better access to online overseas retailers which has seen the retail sector go into a gradual decline.

Industrialisation of China

The industrialisation of China is one of the main factors in the changing shape of Australia from a manufacturing economy to a commodity and service based economy. The growth of China saw a large demand for Australian based commodity exports and service exports such as accounting and other professional services. The industrialisation of China saw Australia shift from manufacturing to importing cheap, low value, high volume simply transformed manufactures (STM) such as textiles, clothing and footwear (TCF). Australia cannot manufacture STMs as Australia has only a small labour force with relatively high wages that position STM manufacturing as uncompetitive. As a result, Australian manufacturing is usually based on competitive elaborately transformed manufactures that are high value and low volume such medicines and pharmaceuticals, that capitalise on Australia's small population but highly skilled workforce.

Microeconomic Reform

Microeconomic reform, particularly those of trade liberalising and competition policies has led to the changing structure of Australian industries.

  • Free trade has led to the force competition of domestic manufacturers to cheaper imported goods.

  • Free trade has also led to easier access to sell commodity and service exports to trading partners.

  • Competition policy such as deregulation and privatisation has led to businesses being even more susceptible to market forces and the changing world economy.

  • Removal of protectionist policy such as tariffs and subsidies has forced businesses to compete with imports or change production to something more efficient.

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