Testing the Olson hypothesis within the Australian context

This article seeks to empirically test whether the Olson hypothesis is applicable in the Australian context. Both cointegration and regression analyses which are utilised for this purpose provide strong support for this hypothesis; that is, the existence of a statistically significant negative relationship between import protection and the proportion of manufactured goods exported. More specifically, it is revealed that falling levels of import protection have underpinned an increase in the proportion of manufacturing goods exported and hence assisted in improving the manufacturing sector's export orientation in the period 1980:1-1996:2. A particularly important dimension of the empirical results is the strengthening of this relationship in the more recent years to 1996:2. This phenomenon probably indicates the favourable impact of the accumulated reduction in the protection levels since the early 1970s.