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Measuring Economic Growth in New Zealand - WP 02/14

1  Introduction

Recently there has been increased interest in New Zealand’s income position relative to other countries, in particular countries in the Organisation for Economic Co-operation and Development (OECD). The increased interest reflects concerns that New Zealand’s relative income position has been falling since the 1950s. For example Growing an Innovative New Zealand(New Zealand Government, 2002) released in February stated that “New Zealand’s relative income declined over much of the post-war period. New Zealand’s real per capita income fell from among the highest in the world in the 1950s, to just under the OECD average in 1970, to 20th in the OECD by 1999.”

To address such concerns the previous Government (1999-2002) adopted a goal of returning New Zealand’s per capita income to the top half of the OECD.

Our economic objective is to return New Zealand’s per capita income to the top half of the OECD and to maintain that standing. This will require New Zealand’s growth rate to be consistently above the OECD average growth rate for a number of years. That will require sustained growth rates in excess of our historical economic performance.(New Zealand Government, 2002)

While such goals focus on New Zealand’s per capita income, the income measure generally used has been Gross Domestic Product (GDP) per capita.[1] This paper highlights a number of issues that are relevant when measuring economic growth over time and when making international comparisons on the basis of ranking in real GDP per capita.

Section 2 examines New Zealand’s ranking within a group of OECD countries, based on our level of real GDP per capita, when several different data sources are used. This highlights that New Zealand’s ranking is to some extent influenced by the data source used (though all sources are consistent with New Zealand sliding down the ladder over time).

The fall in our ranking implies that New Zealand’s growth rate in real GDP per capita must have been relatively poor over periods of time. This leads to the question of what has been New Zealand’s average growth rate since the 1950s and how does this compare with the experience of other countries? However, prior to addressing this question, there are several issues relating to the construction of average growth rates that are important to highlight if a country’s performance is to be accurately assessed. One of these issues is how to measure average growth over any given period of time. This issue is discussed in Section 3.

Data construction techniques can have important ramifications for the estimated growth rate. The impact of data construction techniques on measured growth rates are discussed in Section 4.

With the issues raised in Sections 3 and 4 borne in mind, Section 5 examines New Zealand’s historical growth performance based on several data sources. Finally, Section 6 concludes by briefly summarising some of the key points.

Notes

  • [1]For example New Zealand Government (2002) illustrates New Zealand’s relative decline in per capita income by way of a graph showing New Zealand’s GDP per head.
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