5  Comparing New Zealand to other OECD countries

In this section we compare saving’s outcomes across selected OECD countries at the aggregate, national level and the household level.

5.1  Current account, national saving, gross fixed capital formation and investment

Figure 5.1 plots the current account, net national saving, gross fixed capital formation (GFCF) and investment (gross fixed capital formation less consumption of fixed capital) all as a percent of GDP for 12 OECD countries: Australia, Canada, Finland, Germany, Ireland, Japan, Korea, New Zealand, Norway, Sweden, the United Kingdom and the United States.[18] Data are plotted from 1972 to 2001 where available. The series were obtained from the OECD national accounts database, except for New Zealand. For New Zealand we use the data discussed in the previous sections.

National saving

Figure 5.1 shows that net national saving rates have varied substantially across OECD countries. Saving has been lowest in Finland, with an average rate of 1 percent of GDP, while Korea and Japan experienced the highest average rates, at around 21 and 18 percent respectively. Saving has also been relatively high in Norway, at around 12 percent of GDP. In the rest of the countries, saving rates have averaged between around 4 percent (New Zealand) and 9 percent (Germany).

Gross fixed capital formation and investment

While New Zealand’s measured saving rate appears to be lower than in other OECD countries (apart maybe from Finland), this does not seem to have affected gross fixed capital formation or investment rates. In fact, New Zealand’s average GFCF (investment) rate at around 22 (8) percent ranks in the middle of OECD rates. GFCF rates range from around 30 percent in Korea and Japan to slightly less than 19 percent for the United Kingdom and the United States, while investment ranges from about 5 percent in Sweden to around 33 percent in Korea.

Overall, gross fixed capital formation and investment rates have been fairly stable in Australia, Canada, Germany, Japan, New Zealand, the United Kingdom and the United States. In contrast, in Finland and Sweden, they appear to have dropped to a lower level in 1993. Moreover, gross fixed capital formation and investment have been subject to quite large swings in Ireland, Korea and Norway, steadily declining in Norway and trending upward in Korea. In Ireland, the (gross) investment rate fell over much of the 1980s, but rose over the 1990s.

Current account

Although Korea has had high (and rising) gross fixed capital formation and investment rates, domestic saving has generally been (close to) sufficient to meet strong (gross) investment demand. As a result, its current account as a percentage of GDP, on average, has been zero. The current account has also fluctuated around zero in Germany, Finland and Sweden. In Finland and Sweden, the current account was in deficit until 1993; however, since then, current account surpluses have offset previous deficits. The relatively small current account deficit in Finland prior to 1993 and balanced current account over the period as a whole is somewhat surprising, given Finland’s relatively high rates of (gross) investment and low saving rates.

The current account in Australia, Canada, Ireland, New Zealand, the United Kingdom and the United States, on average, has been in deficit. Ireland’s current account reached a trough at -13 percent of GDP in 1981; however, since 1987 it has shown a small surplus. In Australia, Canada and New Zealand, the current account has been in deficit, associated with relatively low rates of net national saving. In the United Kingdom and the United States, both (gross) investment and saving rates have been relatively low.

Japan and Norway, on average, have had current account surpluses. High rates of gross fixed capital formation and investment have been more than offset by high rates of net national saving.

Although New Zealand saving rates have been among the lowest in OECD countries, (gross) investment rates have been comparable to those abroad. This means to meet domestic investment needs, New Zealand has been able to access foreign saving as reflected in the persistent current account deficit. Kim, Hall and Buckle (2001) find that this accumulation of current account deficits has not be unsustainable when viewed in the context of intertemporal consumption smoothing. The link between saving, investment and growth is discussed in more detail in Claus, Haugh, Scobie and Törnquist (2001).

Figure 5.1 - Current account, net national saving, gross fixed capital formation and investment in selected OECD countries (as a percent of GDP)

Source: OECD, Statistics New Zealand and authors' estimates.