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For a small open economy like Australia, which specialises in commodity exports, fluctuations in the terms of trade and productivity growth are the primary drivers of per capita income growth. Because the global mining sector responds to higher commodity prices by expanding capacity, the terms of trade are unlikely to provide sustained boosts to Australia’s living standards. As such, labour productivity is likely to be the main driver of future growth in living standards. This paper analyses trends in Australia’s productivity performance and disaggregates productivity growth into industry contributions to evaluate how structural change is affecting productivity growth.

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