3  Why are country selection criteria needed?

3.1  Developing focus without losing flexibility

Before looking at the different global connectedness dimensions and criteria for selecting countries for deeper linkages, it is important to consider the merits of compiling this list of countries, and to consider the implications of excluding a country from the list.

It needs to be remembered that New Zealand is a small nation and we are not at the top of every other country’s list for closer links. In some situations it is also necessary to be open to opportunities arising in particular countries that are not on the list, and to keep an open mind towards improving linkages with these countries. These considerations mean that the list of focus countries should only be seen as a guide, and a means of prioritisation. We need to continue to be mindful of all opportunities that may arise. If a country does not appear on the list to be the focus of deepened linkages, this in itself is not a reason for not considering initiatives to improve linkages with such a country.

3.2  Designing a partner selection criteria for deeper bilateral economic relationships

The Government has a role in identifying a set of countries to deepen relationships for three reasons. The first reason is addressing market failure. Markets do not efficiently supply public goods such as basic R&D and generic off-shore investment and trade promotion. The second role of government is ensuring state sector efficiency. The core international business of government, such as trade and immigration policy, must be well planned and executed, and be cost effective and provide value for money to the taxpayer. The third reason is to ensure that external linkages are maximising opportunities for technology transfer and spillovers from the countries that are at the global frontier.

When a government responds to the challenges of supplying public goods, it must do so in an efficient and effective manner. The marginal benefits and costs of engaging with countries will differ between countries. The government is subject to a budget constraint so engagements with countries need to be ranked in terms of their respective payoffs. Unfortunately, the data that is available to assist in ranking countries is limited. This will make any ranking subjective, qualitative and prone to honest disagreements. Nevertheless, there is merit in determining how to evaluate the relative benefits from deeper engagements with various countries using the insights from modern growth literature about trade, knowledge creation and transfer, and R&D spillovers.

The country selection criteria can be used to help screen new policy proposals and existing initiatives to ensure they are cost-effective in achieving the objectives of the Government’s Growth and Innovation Framework (GIF[1]). The GIF sets out what the Government believes it and the private sector must do to raise real economic growth. Innovation and knowledge are identified as drivers of growth, with the key areas being strengthening the innovation framework; growing and developing talent and skills; and improving global connectedness.

The selection criteria and the economic framework that underlies it aim to find policy synergies and to act as a robustness tool in the face of uncertainty and incomplete information when evaluating the costs and benefits of competing policy proposals. By declaring country priorities well in advance of individual project analysis, agencies can be better monitored because initiatives that fall outside the pre-announced regions require more justification. The selection criteria attempt to bring the lessons of experience and general trends to policy analysis. For example, a project with a favourable cost benefit analysis in an area where previous policy initiatives have met with repeated later failure will be scrutinised more closely than otherwise. Similarly, a policy proposal for deeper links with a country that is not on the list of focus countries warrants more attention. Whether an external policy initiative involves a focus country or not should be included in the list of significant evidence and arguments for and against the proposal.