4 Developing country selection criteria
4.1 The six dimensions of global connectedness
The criteria for selecting countries for deeper relationships will have six dimensions: R&D, foreign direct investment (FDI), closer economic partnerships (CEPs) and other bilateral trade links, trade in services, education exports, and people-to-people linkages. Deeper bilateral relationships along these six dimensions should increase New Zealand’s connectedness to the global technological frontier and to our more important export markets, and strengthen the innovation system in New Zealand.
The criteria for R&D, FDI and people-to-people linkages will focus on improving New Zealand’s connections to the countries at the global technological frontier. Greater connectedness to the global technological frontier quickens technology diffusion which raises productivity performance directly and strengthens the domestic innovation system. Spillovers from deeper R&D, FDI and people linkages may be significant.
The criteria for trade will focus on opportunities to expand export market access through the bilateral liberalisation of trade barriers and promotion campaigns about New Zealand exports. Greater connectedness to the global technological frontier is not the main issue in the case of trade. New Zealand is, of course, embedded in a global system that generates mutual interdependence across countries. As is becoming more and more apparent, countries rely on each other for technology transfer, and they learn from each other’s manufacturing methods, modes of organization, marketing, and product design. Industrial innovation is concentrated in a relatively few countries and these countries are major exporters of capital goods. This trade in capital goods spreads technological advances. Trade under conditions of low tariffs allows New Zealand firms to import newly invented capital and intermediate goods and equipment under liberal conditions. This is the passive transfer of technology as discussed in section 2.5. Spillovers may be few.
The criteria for selecting partners for CEPs and other agreements, and for trade promotion campaigns, will build on the distinction between global connectedness and openness. As noted above, openness is the absence of barriers, both here and abroad, to the international flow of factors of production. Deeper global connectedness requires greater actual flows of goods and services. This calls for more attention to markets that are most receptive to bilateral trade liberalisation proposals and/or are most suited to trade promotion campaigns, including the promotion of tourism and education exports.
4.2 The partner selection criteria must be dynamic
Any selection criteria for deepening linkages with other countries must take into account the changing circumstances of New Zealand and its external partners.
To account for the growing importance to international trade of a number of economies in the Asia-Pacific region, the selection criteria will identify two groupings of countries. The first grouping will be focus countries: countries that are currently major partners of New Zealand and are of immediate interest for deeper linkages. The second grouping is horizon countries: countries that are likely to grow in importance to New Zealand over the next 10 to 20 years as they grow in size in the global economy.
4.3 There are strong non-economic reasons for deeper bilateral relationships
The partner selection criteria below will help identify countries of economic importance to New Zealand. However, it should be remembered that we might well choose to focus on a country for a range of reasons, only one of which is economic.
Economic linkages do not define the character of our trade and foreign policy interests. There are many non-economic reasons why we might want to have strengthening links with a country (eg, Canada is a staunch multilateral partner on security and trade issues; Chile is a beach-head into Latin America and so is a strategic investment; and France is a key participant in the South Pacific). Broader and non-economic justifications for policy initiatives are fully acknowledged and should be kept in mind when using the selection criteria that are proposed below. Moreover, many of the countries listed below as of economic importance to New Zealand will on their own want to build economic linkages with New Zealand, often as part of a broader and multi-faceted bilateral relationship.
