4.6  Import content of exports, gross fixed capital formation and consumption[24]

GDP at market prices can be calculated as the sum of total use in purchasers’ prices of final demand less total economy imports. Thus, all else equal, an increase in imports leads to a decline in GDP. To assess the import content of final demand output, the cumulated primary input coefficient for final demand categories can be used. The coefficient shows the contribution of primary inputs to consumption, exports, gross fixed capital formation and changes in inventories taking into account direct and indirect costs of primary inputs by all industries and the ultimate disposition of commodities produced.[25] The matrix of cumulated primary input coefficients for categories of final demand Y is calculated as follows

(18)     Y = MQ^w + S^w

where with is industry i’s weighted output absorbed by final demand category k,

with is the weighted primary input absorbed by final demand category k, where L denotes the number of primary input categories.

Cumulated primary input coefficients for final demand categories across primary inputs sum to one. The coefficients hence show the contribution of primary inputs to the cost of producing final demand output. The cumulated primary input coefficients for exports, consumption and gross fixed capital formation are plotted in Figures 16 to 18. Primary inputs are divided into components of value added (i.e. compensation of employees, employers’ social contributions, gross operating surplus and mixed income and other taxes less subsidies on production), imports and other primary inputs.

The cumulated primary input coefficient for exports, plotted in Figure 16, shows large differences in the import content of exports across countries. Belgium, which has the largest share of exports in total supply (25.5 percent, Figure 1), also has the highest import content in exports (58.3 percent). Australia’s exports, whose share in total supply is smallest (10.3 percent), has the lowest import content (16 percent). A high import content in Belgium means that exports are contributing proportionally less to value added, 0.409 per unit of value added, compared to Australia, 0.8 per unit of value added. The export share in gross output in New Zealand is also relatively low (14.1 percent), but the contribution to value added is high (76.1 percent). The contribution of a unit of exports to value added in New Zealand is comparable to that in the United Kingdom.

Figure 16: Cumulated primary input coefficient for exports

Figure 17: Cumulated primary input coefficients for consumption

The contribution of a unit of consumption of goods and services to value added in New Zealand is comparable to that in Belgium, Denmark, Finland and the United Kingdom, around 70-72 percent (Figure 17). The import content, at 18.7 percent, is similar to that in the United Kingdom (19 percent).

The import content of gross fixed capital formation, plotted in Figure 18, is highest in Norway, at 43 percent, followed by Belgium (41.7 percent) and New Zealand (36.7 percent). A large import content of gross fixed capital formation is suggestive of a high degree of acquisition and diffusion of foreign technology in these countries.

Figure 18: Cumulated primary input coefficients for gross fixed capital formation

5  Summary and conclusions

This paper has examined New Zealand’s industrial structure relative to that in other OECD countries using input output analysis. Comparator countries included Australia, Belgium, Denmark, Finland, Germany, Norway and the United Kingdom. Backward and forward linkages, indices of industry interconnectedness, a value added index, a value added production multiplier, a cumulated primary input coefficient for compensation of employees and a measure of import content of final demand output were calculated.

The analysis suggests that New Zealand’s industrial structure is broadly similar to that in other OECD countries. Some differences arise as certain industries are more important in some countries. For example, the contribution to value added from exports is large for mining in Australia and Norway, for wood, paper products, printing in Finland and machinery and equipment; and chemical, petrol, rubber etc in Germany. New Zealand’s (and Belgium’s) exports appear to be more diversified.

The share of exports in total supply is lower in Australia, New Zealand and the United Kingdom, but the value added of these countries’ exports is higher than in economies with a relatively large share of exports in total supply. The main reason for this larger contribution to value added in Australia, New Zealand and the United Kingdom is a lower import content of exports. This suggests that looking at exports as a share of total supply or as a share of GDP only to assess the importance of exports for economic growth can be misleading.

Finally, the share of gross operating surplus in value added is high in New Zealand and the proportion of compensation employees is low, indicating a high rate of return to capital relative to labour. This is contrary to the perceived view of low rates of return to capital and probably warrants further investigation.