Will a falling AUD curb the population ponzi?

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By Leith van Onselen

Rob Burgess has written an interesting post today at Business Spectator, which contends that a falling Australian dollar would curb immigration into Australia by reducing the pay-off from earning Australian dollars and raising living costs:

Australia has been a very attractive destination for skilled workers from around the world, including developed nations such as the UK and US.

Recruiting in such markets relies on several factors, but key among them is the ‘lifestyle’ that temporary migrants will enjoy and the remuneration paid in sky-high Australian dollars.

Both those things are now looking a little shaky.

…Australia has, for many years, been the ‘drain’ into which many ‘brains’ from our region and elsewhere flowed. However, cost of living issues flowing from the housing market, and the possibility of a sharp downward correction to the dollar – which also has large cost-of-living ramifications via imported inflation – might just be enough to make the ‘brain drain’ flow the other way.

In order to test Burgess’ contention, I decided to chart net long-term and permanent arrivals data against the value of the Australian dollar (measured against the trade-weighted index):

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While correlation does not necessarily mean causation, Burgess does seem to be onto something, with the exchange rate potentially a leading indicator of net migration flows. It is often forgotten that there are strong market dimensions to immigration and if unemployment, costs of living and the AUD all go the wrong way then we would expect to see a large fall in net migration, as migrants shun Australia in favour of more financially rewarding destinations.

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About the author
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.