According to recent figures there has been a rise of 12% in overseas students in 2015/16 with the increase in students from China being a huge 23% higher than last year.
When this size of change occurs it is fair to say that something has changed in the market. It could be a change in a condition of demand or supply. However the turnaround in numbers has nothing much to do with extra places becoming available or a sudden jump in the reputation of Australian education.
The reason that Australia is a popular student destination again is all to do with the exchange rate. In 2011 the Australian dollar (AUD) bought US$1.1, today it will buy about 73 US cents. This makes it much cheaper for foreign students to study in Australia. The relative price of Australian educational institutions has fallen and so overseas students have switched from the alternative (substitutes) course.
The chart below shows the exchange rate of the AUD against the US$ since 2009.
The rise in student numbers is one example of how the competitiveness of the Australian economy has improved as a result of the depreciation of the Australian dollar. The result has been a boost to those sectors of the economy which reply on export markets, including manufacturing. As a result Australia is recovering from the end of the mining investment boom rather better than anticipated.
IB students will want to consider whether the Marshall-Lerner conditions are met and the ultimate effect on the Current Account balance. There will, of course, inevitably be a rise in the volume of exports and a reduction in the volume of imports.
This article is of great importance to VCE students as this is an important demand side influence on the Australian economy. IB students should also be equally interested in the article as an example of the impact of floating exchange rate regimes.
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