Major export markets—Better governance supports Australia’s exports

According to the World Bank’s 2020 Worldwide Governance Indicators, generally high governance scores in Australia’s largest 20 export destinations support the export outlook beyond the pandemic (Chart). Comparing data from 2015 to 2020, governance scores have strengthened in emerging markets with strong growth potential, including India, Indonesia and Vietnam. Recent improvements in government effectiveness, regulatory quality and rule of law supports a more effective set of institutions and regulations that enhances business activity. For example, Indonesia’s commitment to anti-corruption and economic reforms and Vietnam’s reform implementation linked to several free trade agreements (such as investor-state dispute settlement) bolsters investors’ confidence.

Governance scores for some advanced economies that feature prominently in Australia’s export profile have weakened over the five years to 2020, particularly in areas such as political stability, government effectiveness and rule of law. For example, rising political risk in Hong Kong could erode the attractiveness of the special administrative region as a trade and financial hub, while rising social risk and income inequality in the US could have negative longer-term economic implications, if left unaddressed. But overall governance scores remain very high for this group. Advanced economies tend to have strong, credible and transparent institutions, constitutional separation of powers and highly effective policymaking. Such institutional settings are conducive for doing business and support economic activity, employment and incomes.