The Treasury

Global Navigation

Personal tools

New Zealand’s Capital Stock: OECD Comparisons

Two different estimates show New Zealand with low capital intensity relative to other OECD countries

If annual investment outpaces the depreciation of old investment, then the capital stock grows. In most models of productivity, this capital stock is a crucial variable. Unfortunately, due to differences in coverage and the requirement for purchasing power parity conversions, it is difficult to accurately estimate capital stock levels (and MFP levels) so that they are easily comparable across countries. Figure 4 provides one comparison from MED and Treasury (2005), estimating that New Zealand’s level of capital intensity (capital per unit of labour) is low compared to other OECD countries – about 71% percent of the US level and 74% of Australia’s level. Schreyer (2005) uses more sophisticated methods and produces a significantly lower estimate of New Zealand’s relative capital intensity in 2002: 49% of the US level and 63% compared to Australia.[1]

Figure 4: Capital Intensity — OECD Countries in 2002
Figure 4: Capital Intensity — OECD Countries in 2002.
New Zealand also has a low level of MFP relative to the OECD

These same authors also demonstrate that New Zealand’s level of MFP has been low compared to other OECD countries. Figure 5 shows the MED and Treasury estimate, which reports New Zealand’s MFP at approximately 73% of the US level and 92% of the Australian level. Schreyer comes up with roughly similar values: 73% and 86%. This leaves us with the question of how to think about the interaction between the capital intensity and MFP gaps, and their relative importance for labour productivity. This is the subject of the next section.

Figure 5: MFP levels — OECD Countries in 2002
Figure 5:  MFP levels — OECD Countries in 2002.
Low capital intensity is fairly widespread across sectors

Two pieces of evidence suggest that New Zealand’s low capital intensity is fairly widespread across sectors of the economy. Mason and Osborne (2007) compare 22 New Zealand industries (corresponding to Statistics New Zealand measured sector plus business services) with counterparts in the UK. Of these, only four have significantly higher capital intensity than the UK: wood and paper product manufacturing, metal product manufacturing, and construction and communication services.[2] IMF (2002) compares New Zealand industries with Australia (at a broader level of aggregation) and finds that New Zealand lags Australia’s capital intensity across the board.

Notes

  • [1]Schreyer calculates his capital measure as “capital services” and uses an OECD ‘harmonised’ set of deflators for ICT products.
  • [2]It is perhaps not surprising that these sectors have higher capital intensity given New Zealand’s terrain and low population density.
Page top