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New Zealand's current performance

Business R&D. % of GDP, 2005.

How open?

Distance from the sources of knowledge represents a barrier. New Zealand's geographical distance from sources of knowledge in Europe and USA probably dampens the transmission of ideas. The greater the degree to which a specific technology is non-codified, the more face-to-face contact will be required in order to transfer the technology. If distance inhibits the opportunities that New Zealand firms and organisations have to interact with foreign entities, it will reduce the flow of tacit information.

Barriers to sources of embodied knowledge in imports, FDI, and migration are generally low. As discussed earlier in this paper, formal barriers to both imports and FDI are low, and migration settings select for high-skill migrants.

Intellectual property rights put relatively more weight on the users of new knowledge than most OECD economies. Intellectual property rights aim to strike a balance between allowing the creator or discoverer of new knowledge to appropriate the benefits and allowing for the diffusion of new ideas. There are good reasons for New Zealand, as largely a technology follower, to strike a different balance than other OECD economies between the rights of intellectual property holders and users, to allow knowledge codified in patents created abroad to be used in New Zealand at low cost.

How well connected?

No complete measure exists, so flows of ideas have to be inferred. By its nature, knowledge is difficult to pin down, so the measures discussed here are necessarily imperfect.

Domestic R&D is relatively low. R&D as a proportion of GDP is roughly half the OECD average, and business R&D about a third. R&D funded from abroad is also slightly below the OECD average.[95] To the extent that low R&D is illustrative of New Zealand's innovation system as a whole, it may imply that New Zealand has a low level of adoption of international knowledge.

Sources of information for innovation tend to be business links rather than institutional links. Survey evidence suggests New Zealand's overall innovation rate is not sub-standard, but international comparisons are difficult to make. The sources of information for innovating businesses appear to be predominantly existing staff, new staff, and customers.[96] These results suggest businesses generally gain information from their day-to-day activities, rather than links with, say, institutions such as universities and CRIs. One implication is that it underlines the importance of general business international connections to tap into knowledge created abroad.

Payments for technology created abroad seem reasonably high. The OECD constructs a ‘technology balance of payments' to measure disembodied idea flows. On this metric, New Zealand performs quite well, with relatively high payments being made for foreign knowledge, though the measure appears to be somewhat volatile over time, and New Zealand remains well below many other small advanced economies.[97]

Potential adverse consequences

Technological change is likely to exacerbate inequality. As discussed earlier (pages 7 and 29), technology appears to be the largest driver of increasing inequality. An ‘hour glass’ economy is emerging in many developed economies, characterised by rising relative demand for well-paid skilled jobs and for low-paid least skilled jobs and falling relative demand for those jobs ‘in the middle’. This is occurring because technology can substitute for human labour (or can facilitate the outsourcing of it) in jobs like craft manual jobs and book-keeping jobs that require precision and hence are not the least skilled jobs in the labour market.

Consequently, maintaining social safety nets and ensuring good social mobility, so all New Zealanders can achieve their potential, are likely to be important policy goals. In addition, education becomes even more important to raise skill levels to allow all New Zealanders to take full advantage of the pace of technological change and lower the tendency toward inequality.


  • [95]See, for example, Figures 3.13 and 3.24 of MED et al (2007).
  • [96]Statistics New Zealand (2007d)
  • [97]See OECD (2007c).
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