Chinese resource demand and the natural resource supplier

This article provides empirical evidence on the effects of Chinese resource demand on the resource-rich natural resource supplier using the example of Australia. A structural VAR model is used to examine the effects of Chinese resource demand, commodity prices and foreign output on the macroeconomy with a formally specified mining and resource export sector. The key findngs of the article are that shocks to Chinese demand and commodity prices result in a sustained increase in commodity prices and mining investment and a positive impact on the resource sector. However, these shocks eventually led to lower real domestic output with factors of production moving out of the nonresource sectors and onto the resource sector, resulting in a fall in nonresource sector output which is not fully offset by the rise in resource sector ouptut. The reults also indicate some market power by the natural resource supplier.