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International Connections and Productivity: Making Globalisation Work for New Zealand - TPRP 09/01

An international perspective in domestic policies?

When policy makers think of international issues, trade and investment policies tend to be the first reactions, particularly policies at-the-border. It is becoming increasingly clear, however, that domestic policies more broadly can have a pervasive impact on international connections. The discussion of agriculture above provides some concrete examples.

In recent years, the international furniture chain IKEA has been considering entering the New Zealand market. A new shopping centre was proposed in Auckland, in which IKEA would be a tenant. The Auckland City Council turned the proposal down, based largely on traffic concerns. The Environment Court overturned that decision, but put strict rules around it, explicitly excluding IKEA.[103]

Decisions on a wide range of domestic policies indirectly influence international connections, but do not necessarily consider the international dimension.

From an international connections perspective, IKEA would be likely to bring a number of (mainly longer term) benefits to New Zealand, such as quality products for consumers, competition, pressure on vertical supply chain linkages, management expertise, and international experience. Other international firms may have noticed IKEA's negative experience.

The point here is that whether IKEA entered New Zealand did not depend on foreign investment screening or international transport costs, but rather on a string of domestic policy settings, including roading infrastructure, the Environment Court process, and the Council's approach to retail centres.

To take another example, the power blackout in Auckland in 2006 was the result of a low-probability equipment failure. International media coverage could, however, have had disproportionate consequences for perceptions of New Zealand's infrastructure and therefore investment attractiveness.[104] Would an international perspective suggest taking more account of low-probability, high-impact events in electricity transmission?

The implication of this discussion is that policy settings in all areas should consistently be taking an international perspective. When considering domestic business regulations, for example, policy makers should explicitly consider the relative restrictiveness compared with other countries, and how harmonised the regime is with international norms, with a high hurdle to having a significantly different type of regime.[105]

Taking labour mobility seriously?

The traditional way of thinking about migration is that people leave or come to New Zealand permanently. But increasingly, mobility will take the form of temporary, or circular, migration, where people may leave for a number of years, and then return later or move on to another country.

Trends towards greater global mobility of skilled labour and circular migration challenge some domestic policy settings.

Overall global mobility is also increasing, especially for skilled talent. The trans-Tasman labour market is effectively a single labour market, and people will increasingly move freely between Australia and New Zealand, perhaps several times over a career.

Greater mobility and the trend to circular migration have potentially far-reaching implications for thinking about domestic policies. Some areas that could be worth investigating are:

  • New Zealand collects a large portion of tax revenue from a tax base (labour) that is increasingly internationally mobile. Should New Zealand consider shifting over time to a less mobile tax base?
  • New Zealand currently subsidises tertiary education when students are young and relatively immobile, and then taxes graduates relatively heavily when they are skilled and internationally mobile. How large are these effects and are there alternative ways to set up the incentives?[106]
  • Young New Zealanders often gain qualifications and then leave for their ‘OE'. Denmark, for example, puts greater weight on studying abroad through scholarships, and then returning to Denmark. Are there ways New Zealand could incentivise a ‘studying OE'?
  • Public services are funded on the basis of public benefits, but these benefits may be less likely to occur with a more mobile population. Are there areas of policy, such as education or superannuation, that may need to be reconsidered in the future?
  • New Zealand's diaspora is among the largest in the OECD. Is New Zealand keeping in touch with and making the most of its diaspora, particularly since some will be interested in returning to New Zealand in the future?


  • [103]For example, see NZ Herald article 7/2/08, “Ikea not coming - because they'd be too popular”,
  • [104]Work by a Treasury summer intern (Duncan, 2009) investigated international surveys and found that subjective measures tended to be worse than measures based on hard data.
  • [105]It is being increasingly recognised (e.g. Kox and Nordås, 2007) that there are effectively two main dimensions for comparing domestic regulatory regimes with other countries’: the level of restrictiveness (i.e. whether the regulation in New Zealand is tighter or looser than international norms), and the degree of harmonisation with international norms (i.e. how similar or different the general structure of New Zealand's regulatory settings are from international norms). The additional costs imposed by significantly different regimes suggest a high hurdle should be placed on differentiation from international norms.
  • [106]For example, Andersen (2005) argued that lowering of taxes on (skilled) mobile workers and reduced educational subsidies would lower emigration of skilled workers and still maintain educational incentives. Also note that student loan repayments increase the effective marginal tax rate faced by graduates by 10 percentage points, though there overall is only weak evidence that student loans influence people to go overseas (Smart, 2006).
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