Why Did Australia Fare So Well in the Global Financial Crisis?

Abstract

Some jurisdictions weathered the global financial crisis far better than others. Australia has attracted much attention in view of the fact that its economy performed particularly well during the crisis compared to the United Kingdom and the United States.

The chapter explores why the Australia fared so well in the crisis compared to these other common law jurisdictions. A stock answer to this question has been that Australia was “lucky”, in that its economy was buoyed by China’s growing demand for resources. Although strong trade links with China undoubtedly constituted part of the puzzle in this regard, this chapter argues that there are a number of other relevant, but under-appreciated, factors which contributed to Australia’s resilience during the crisis.

These factors include monetary and fiscal policy; legal structures and reform; financial market regulation; banking history; and corporate governance. The chapter explores these specific factors from a comparative perspective, demonstrating key differences in their operation in Australia during the crisis. Australia’s experience of the global financial crisis is a reminder that financial markets do not operate in a vacuum, but rather form part of a complex economic, legal and regulatory ecosystem.

Keywords: global financial crisis, corporate crises, financial market regulation, regulatory structure, prudential regulator, Australia, monetary policy, economic stimulus program, HIH collapse, Australian banking system, superannuation

JEL Classification: E58, G18, G28, G30, G32, G34, K20, K22, K23, M14, O16