In recent times, the fallacy that Australia is at a disadvantage because of its dependence on exports of primary commodities has dominated Australian economic debate.
This view has been based upon the dual notion that the prices of agricultural and mineral exports are both more variable, and lower than those of manufactures.
This contention, however, does not appear to have been verified to any rigorous extent. In a novel approach, this thesis, drawing on portfolio theory, examines the risk-return characteristics of Australia's major exports.
The analysis conducted concludes that attempts to diversify Australia's export base toward a larger composition of manufactures will amount to a serious misallocation of resources. This, in turn, will lead to an overall reduction in social welfare and, it is conjectured, also lower the total value of Australia's export earnings over time.