In order to promote economic and social development it is important that we understand the environment in which regional economies operate. This study provides an analytical investigation of the challenges facing regional Australia.The study takes a multifaceted and holistic approach. The underlying principle is that economies do not work in isolation and a complex mix of interacting drivers affects a region’s economic performance.
Tasmania’s economic performance has experienced changing fortunes over the past two decades. This development provided a unique opportunity to investigate the drivers of this change and to find out if there are lessons for regional policy.
• Tasmania’s natural resources have been its economic foundation for the past two centuries. It is a small open economy reliant on trade as a major source of income. • Throughout the 1990s, a vicious circle developed after the recession through declining employment, income, consumption, investment and business activity. No single causal explanation can explain the slowdown in Tasmania’s economy throughout the 1990s. • The renewal this decade demonstrates a virtuous circle of increases in income, consumption, wealth (primarily through housing) and population, which have all enhanced the growth of the Tasmanian economy. • Tasmania is connected to the national economy with co-movements and common cycles but is subject to more idiosyncratic shocks. • Migration has been an important driver and reflector of the state’s economic performance. Out migration is influenced by the shape of the state’s economy and in migration is influenced by the level of housing affordability in comparison to the mainland. Structural ageing will have economic consequences for the Tasmanian economy into the future. • Tasmanian business confidence has mirrored the performance of the state’s economy, with stronger growth in private investment this decade in both housing and the business sectors. • Industry structure played an important role in the underperformance of Tasmania’s economy during the 1990s. Tasmania’s industry composition is heavily weighted towards traditional industries, such as manufacturing, agriculture, forestry and fishing. • Tasmania’s government has influenced the performance of the state’s economy through its fiscal management and leadership role. • Tasmania’s Labour and Multi Factor Productivity is below the national level and grew more slowly over the entire study period. There are a number of possible explanations for Tasmania’s lower levels of productivity, such as lack of economies of scale, human capital differences, industry mix and lower participation rates.