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Measuring Economic Growth in New Zealand - WP 02/14

2  New Zealand’s place on the OECD ladder

Figure 1 presents New Zealand’s ranking in the OECD, in terms of real GDP per capita, based on data from three different sources. These different data sources are OECD (2002)[2], Maddison (2001), and Penn World Tables (PWT)[3]. The rankings on which Figure 1 is based are displayed in Table 1.

Figure 1 – New Zealand’s Real GDP per Capita Ranking Amongst OECD Countries

Regardless of which data source is used, New Zealand’s ranking has dropped over time. Note that in Figure 1 the values on the vertical axis are displayed in reverse order, ie higher numbers (lower rankings) are below lower numbers (higher rankings). Consequently a negative slope is associated with a worsening in the ranking over time. However, there is a degree of variation in New Zealand’s relative ranking across the different data sources. This implies that data construction and collection techniques can influence the particular ranking that New Zealand attains.[4] It is also interesting to observe that New Zealand’s GDP per capita ranking based on OECD data was substantially higher when 1995 purchasing power parities (PPPs) are used rather than the 1995 exchange rate against the United States dollar.

Table 1 – New Zealand’s GDP per Capita Ranking Amongst OECD Countries
year OECD ($US) OECD (PPP) PWT Maddison (2001)
year OECD ($US) OECD (PPP) PWT Maddison (2001)
1950 3
1951 4
1952 4
1953 7 4
1954 4 3
1955 6 3
1956 7 3
1957 6 3
1958 7 3
1959 7 3
1960 3 3
1961 4 3
1962 5 4
1963 4 3
1964 5 5
1965 4 4
1966 5 3
1967 7 7
1968 7 8
1969 7 7
1970 16 9 8 9
1971 16 9 8 9
1972 16 9 8 9
1973 16 8 7 9
1974 15 6 7 8
1975 17 9 7 9
1976 17 11 10 11
1977 17 15 12 14
1978 18 16 14 15
1979 19 18 14 16
1980 19 18 15 17
1981 18 18 14 16
1982 18 18 13 16
1983 18 18 12 17
1984 17 18 12 15
1985 19 18 14 17
1986 19 18 15 18
1987 19 18 16 17
1988 19 19 18 17
1989 19 19 18 17
1990 19 19 18 17
1991 20 19 17
1992 20 19 17
1993 20 19 17
1994 20 19 17
1995 20 20 17
1996 20 20 18
1997 20 20 18
1998 20 20 18
1999 20 20
2000 20 20

The OECD datasets used in this paper include the following 26 countries (lowest ranking possible is 26): Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Greece, Iceland, Ireland, Italy, Japan, Korea (South), Luxembourg, Mexico, Netherlands, New Zealand, Norway, Portugal, Spain, Sweden, Switzerland, Turkey, United Kingdom, and the United States.

The Penn World Table (PWT) dataset used in this paper is made up of 25 countries (lowest ranking possible is 25). These are the same as for the OECD datasets with the exclusion of Germany.

The Maddison dataset used in this paper is made up of 24 countries (lowest ranking possible is 24). These are the same as for the OECD datasets with the exclusion of Iceland and Luxembourg.

Ultimately, it appears there will always be a degree of uncertainty as to New Zealand’s actual GDP per capita ranking for any particular individual year back to 1950 (and prior) due to different data sources or differences in the units in which GDP per capita is expressed providing different rankings. This uncertainty also applies to pinpointing sub-periods where New Zealand’s ranking decline has been the greatest. Three out of the four series for New Zealand’s GDP per capita ranking display substantial falls in the mid-to-late 1970s.[5] For example, the series based on PWT data shows that New Zealand dropped from 7th in 1975 to 15th in 1980. Likewise the series based on OECD PPP data shows that New Zealand dropped from 6th in 1974 to 18th in 1979. The Maddison series also shows a sizable decline over this period. The entry of Britain into the European Union and the resulting loss of free entry to British markets for dairy products, and the oil price shocks of the 1970s are potential explanations for New Zealand’s relative fall in the real GDP per capita rankings during this period.

Based on the data shown in Table 1, there may be a case for arguing that the mid to late 1960s was also a period in which New Zealand’s ranking fell significantly. For example, in 1966 the Maddison series ranked New Zealand 3rd, whereas in 1970 New Zealand’s ranking had slipped to 9th. The collapse of wool prices in 1967, due to increased competition from synthetic fibres, coincides with the fall in ranking that occurred during this period.

Other economists have expressed alternative views as to which periods are most significant in New Zealand’s slide down the OECD’s rankings. For example, Brian Easton states that “The economy mainly lost its placing following two major shocks – in the late 1960s when the price of wool collapsed, and the late 1980s when there was a grossly overvalued real exchange rate.”[6] As already discussed, the first of these two explanations is to some extent apparent in the data displayed in Figure 1. The later explanation is not really supported by three of the four series used in this paper, although the PWT series does show that New Zealand’s ranking slipped from 12th in 1984 to 18th in 1988. It is clear that dating key periods is itself dependent on the particular data series chosen.

Falls in New Zealand’s ranking within the OECD result from relatively poor growth in real GDP per capita in comparison to other OECD countries over time. Therefore it would be of interest to know what has been New Zealand’s average growth rate since the 1950s and how does this compare with the performance of other OECD countries? As is the case for determining New Zealand’s ranking in the OECD, it is likely that different people will obtain different estimates of New Zealand’s growth rate over a period. These estimates are likely to differ due to: the approach taken to measuring the average growth rate over a period; the real GDP series used; the units in which the series is expressed; and the particular time period used. The next section discusses four possible ways of measuring the average growth rate of real GDP per capita over a period of time.

Notes

  • [2]Data from two tables of this publication were used. OECD($US) rankings are based on Table A.9 of OECD(2002) which presents GDP per head at the price levels and exchange rates of 1995 (US dollars). OECD(PPP) ranking are based on Table B.7 of OECD(2002) which presents GDP per head at the price levels and PPPs of 1995 (US dollars). In both cases data was obtained electronically via OLISNET to enable annual data from 1970 through to 2000 to be used. The Czech Republic, Hungary, Poland and the Slovak Republic are excluded from the sample due to the incomplete time coverage of their data.
  • [3]Alan Heston, Robert Summers, Daniel Nuxoll and Bettina Aten, Penn World Tables Version 5.6, Center for International Comparisons at the University of Pennsylvania, January 1995.
  • [4]Differences in the number of countries included in the various datasets may also lead to different datasets suggesting different rankings. The OECD data displays a ranking out of 26 countries, the PWT data displays a ranking out of 25 countries, and the Maddison data displays a ranking out of 24 countries (as outlined in Table 1). These differences in country numbers are not sufficient to explain the differences between the rankings obtained when using the different datasets, implying that data construction and collection techniques also play a role.
  • [5]The series based on OECD($US) data also displays a falling ranking over this period, although the loss of places is not as great in this series.
  • [6]Easton(2002) "Of roast pork - Treasury debates the economy." Listener.
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