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He Tirohanga Mokopuna: 2016 Statement on New Zealand's Long-term Fiscal Position

2 Economic growth (continued)

Greater diversity and complexity of exports

Primary sector exports are likely to remain an important part of New Zealand's exports. Rising demand for protein in emerging countries creates opportunities for higher primary export volumes. Further processing and innovation in primary products will add to total export revenues. This is likely to build on existing capabilities, such as our strength in agricultural technologies, and could occur at different parts of the supply-chain.

Moving into more knowledge-intensive goods and services exports will enable us to exploit opportunities for innovation and productivity growth, as well as making us less vulnerable to fluctuations in commodity prices. A focus on a broader mix of exports will mean a wider spread of innovation opportunities, and will require a wider range of skills (see Section Three).

The diversification and nature of an economy's exports can be an indicator of its productive capabilities. Exporting a wide range of products, where those products tend to be only produced by a small number of countries, can reflect strong productive capabilities. While complexity in service exports is difficult to measure, New Zealand's goods exports appear to be relatively less complex than other small advanced economies (see Figure 2.2). In the case of primary exports, New Zealand has a relatively sophisticated set of capabilities with ongoing productivity growth in the sector. As a result, the primary sector is likely to be more complex than the indicators show. However, the analysis suggests that increasing the overall complexity of exports, including at different stages of the supply chain, may have a role in lifting incomes. More recently, New Zealand has been making progress in developing higher-value export industries in areas like ICT, high-tech manufacturing, agricultural-technology, and high value foods.[17]

Figure 2.2 - Economic complexity trends of small advanced economies
Figure 2.2 - Economic complexity trends of small advanced economies   .
Source:  Kuan Ming Leong (2016) Economic complexity trends over time: Upgrading complex capabilities in small economies. Paper prepared for the September 2016 meeting of the Small Advanced Economies Initiative.

Note: The Economic Complexity Index (ECI) is derived from information on the diversity of a country's exports and the complexity of those exports (where the less common an export is, the more complex it is assumed to be). Countries with a high ECI tend to export a wide range of products that are more complex. The global average ECI is equal to zero.

Collaborating for regional economic development

Regions vary in their incomes, levels of inequality, demographics, types of resources, industry composition, and the degree to which they are reaching their economic potential. While some of New Zealand's non-urban regions have higher GDP per capita than its cities, others have experienced persistently weak economic performance relative to the rest of New Zealand over many years and opportunities for economic participation in these regions have been scarce.[18] Government operating expenditure on services per capita tends to be weighted towards our least economically prosperous regions.[19] Improved economic performance that makes the most of local assets, including people and their skills, has the potential to boost the prosperity of communities, and could also strengthen New Zealand's economic resilience through greater overall industry diversity.[20]

Collaborative regional economic development can lift the living standards of all New Zealanders. Regional economies have unique characteristics that can be leveraged for the benefit of all New Zealanders (e.g. mussel production in Marlborough can indirectly generate jobs in the finance and insurance industries in Auckland). Although labour mobility is often sticky because people have strong connections to land and communities[21], areas with a strong sense of community and trust can foster appropriate development and use of common resources, such as water.[22] The Seamless Boundaries Project is a New Zealand example of collaboration between two mayors which connected underemployed young people in Kawerau with employers in Matamata-Piako.[23] Using local knowledge can also help identify new opportunities for infrastructure or deliver culturally appropriate social services.

Central government collaboration with communities offers an opportunity to build on unique talents, knowledge and influence of communities. Local leadership and community buy-in can be complemented by ideas and initiatives at a national level.[24] International policymakers are increasingly recognising the importance of central government agencies partnering with local stakeholders.[25] Partnering reduces the risk of diverting economic resources and opportunities from elsewhere (i.e. displacement effects) and helps enable interventions to be developed and delivered at a level where costs and benefits can be captured. Government and local partners can work together to identify local strengths and to ensure social and economic initiatives complement each other. A New Zealand example is the assignment of senior officials from central government to act as an entry point for regional stakeholders to engage with government (since 2015). Stakeholders have indicated that this a positive step forward to improve government's responsiveness to regional issues.[26] The Treasury considers that looking through a regional lens and actively partnering with regions is an integral part of developing policy for resilient and inclusive growth for the whole of the country.

There are benefits from both agglomeration and regional development. The bringing together of people, resources and industry can create spillovers in knowledge capital and other benefits. These spillovers are called 'agglomeration benefits' and can happen in small towns as well as in big metropolitan areas (such as Auckland in the New Zealand context). Similar to the approach outlined by others,[27] the Treasury takes a regional lens to its policy advice, recognising that every region has comparative advantages, some of which can be grown or strengthened through bespoke interventions.

Notes

  • [17] MBIE (2015) Information and Communications Technology, New Zealand Sectors Report Series; MBIE (2013) High Technology Manufacturing, New Zealand Sectors Report Series; MBIE, Investor Guide to the New Zealand Technology Sector; MBIE, The Investor's Guide to the New Zealand Food and Beverage Industry.
  • [18] MBIE (2015) Regional Economic Activity Report.
  • [19] NZIER (2013) Regional Government Expenditure – Estimates of core Crown spending by region.
  • [20] Thomas Farole, Andres Rodriguez-Pose, and Michael Storper (2011) Cohesion Policy in the European Union: Growth, Geography, Institutions. Journal of Common Market Studies, 49(5), 1089-1111. Ron Martin (2012) Regional economic resilience, hysteresis and recessionary shocks. Journal of economic geography 121, 1-32.
  • [21] David Autor, David Dorn, and Gordon Hanson (2015) Untangling trade and technology: Evidence from local labour markets. The Economic Journal 125(May): 612-46.
  • [22] Elinor Ostrom (2015) Governing the Commons. Cambridge: Cambridge University Press.
  • [23] Dan Henderson (2016)The Future is Young: How the Regions Can Address Youth Underachievement. In Rebooting the Regions, ed. Paul Spoonley.
  • [24] Amartya Sen (2009) The Idea of Justice. London: Allen Lane.
  • [25] World Bank (2003) World Bank Development Report: 2003: Transforming Institutions, Growth and Quality of Life. Washington, D.C.: World Bank; Fabrizio Barca, Philip McCann, and Andres Rodríguez-Pose (2012) The case for regional development intervention: place-based versus place-neutral approaches. Journal of Regional Science, 52(1), 134-152; OECD ( 2009) How Regions Grow; U.S. White House (2010) Developing Effective Place-Based Policies for the FY 2012 Budget. Washington, D.C.
  • [26] Christine Cheyne (2016) No Region Left Behind." In Rebooting the Regions, ed. Paul Spoonley.
  • [27] Refer note 25.
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