Realizing Economic Growth in Western Australia

The Growth Lab used its Growth Diagnostics and Economic Complexity methodologies to analyze the State of Western Australia’s economy and to identify avenues for productive diversification and sustainable economic transformation both at a state and regional level.

The Growth Lab worked with the Government of Western Australia (WA) through its Department of Primary Industries and Regional Development (DPIRD) between 2019 – 2020. The project aimed to identify both high-potential economic diversification opportunities and structural challenges to sustained and inclusive growth. Our research team applied growth diagnostic and economic complexity methodologies to inform policy recommendations in order to accelerate productive transformation, economic diversification, and more inclusive and resilient job creation across WA.

Western Australia has experienced highly imbalanced economic growth, both over time and among regions. Its past engines of growth have been dominated by its world-leading mining sector together with other primary industries, but the economy had few complementary engines of growth. This has exposed WA to commodity price-driven boom-and-bust cycles, where booms manifest in unsustainable stresses on key markets, including housing and real estate, and busts result in unfortunate levels of job loss. Repeated cycles, including an extended economic expansion tied to commodity prices between 2002-14, have entrenched structural features of WA’s productive structure that constrain the emergence of a more diversified, resilient and inclusive economy. 

Project Dates

2019 - 2020

FUNDED BY

State of Western Australia, acting through its Department of Primary Industries and Regional Development

KEY DIAGNOSIS

Diagnosis of Systemic Barriers to Diversification

WA’s productive structure has generated several self-reinforcing negative externalities that have undermined the emergence and scaling of nascent industries and have intensified over the last two decades. These externalities persist because of several causal channels. First, WA’s labor market struggles to respond to volatile demand for labor due to a mix of natural and policy-driven factors. This leads to persistently high wage premia and painful labor market dislocations. Second, fiscal policy is pro-cyclically oriented, which intensifies boom-bust cycles, whereas counter-cyclical fiscal policy would buffer shocks. Third, public good provision effectively serves the existing structure of the economy and population dynamics, but does not serve the needs of a diversified economy. These systemic issues require systemic solutions.

Policy Framework to Address Systemic Issues

The Growth Lab’s extensive Research Findings and Policy Recommendations Report summarizes its earlier Growth Perspective Report and Economic Complexity Report and provides an overarching framework to overcome these interacting issues so that greater economic diversification may take place. The ultimate goal of this policy framework is to create the conditions for more sustainable and resilient economic growth to take place in order to create more and better job opportunities for generations of Western Australians. The framework is structured around three main policy goals — namely, achieving labor market balance, counter-cyclical fiscal policy, and better alignment of public goods provision — and the cross-cutting goal of actively supporting the development of new engines of growth. For each policy goal, the report outlines key principles that must be utilized to address underlying factors that cause systemic problems to persist. The report also discusses a range of policies and processes that may be appropriate under each principle of the framework.

Location of Promising New Opportunities in Custom-Designed Employment Space

While addressing these systemic barriers is necessary to jumpstarting diversification and allowing for the growth of nascent industries, active approaches can be taken to help coordinate the removal of barriers for particular industries and within particular locations. The Growth Lab’s Economic Complexity Report analyzes WA’s existing productive capabilities and identifies a range of economic activities that would be likely to thrive in the state if obstacles are overcome. The report presents specific industries that are grouped in the following areas: (1) primary industries and related; (2) intermediate inputs and materials manufacturing; (3) technology and advanced manufacturing; (4) professional services; and (5) tourism.

TEAM MEMBERS

Ricardo Hausmann

Ricardo Hausmann

Director
Rafik Hariri Professor of the Practice of International Political Economy, HKS
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