Some Aspects of Trade between Australia and Pacific Island Countries

Abstract

Australia and Pacific Island countries (PICs) have maintained an ongoing trade and economic relationship for several years. The determinants of trade between Australia and PICs are examined using a gravity model by utilising time-series cross-country data for the period 1981 to 2005. The empirical findings indicate that imports by PIC from Australia are significantly determined by PICs’ population and their per capita GDP. The results also suggest that PICs’ exports are significantly determined by PICs and Australia's population, PICs’ infrastructure (telecommunications) and the distance to Australia. Consistent with the findings of other studies using the gravity model, distance is found to be a friction to PICs’ exports to Australia. While this study identifies factors influencing PICs’ trade with Australia, a more substantial issue for the governments and trade policy makers in PICs is to look into the generally disappointing long-term trade performance. From a policy perspective, PICs would need to seriously look at increasing their export potential.