6 Summary and next steps
This paper investigated whether there are a key set of countries with which New Zealand should be seeking to form deeper bilateral economic relationships. The paper used the insights of the new theories of economic growth to develop criteria for selecting countries as potential partners for deeper economic linkages across six global connectedness dimensions: FDI, R&D links, trade in goods, inbound tourism, education exports and people-to-people linkages. The new theories of economic growth provide many new ways to think about economic growth and international integration and a more diverse set of mechanisms for analysing the role of government policy and off-shore linkages.
We identified a core of countries along the Asia-Pacific Rim (as well as the UK) with which New Zealand should deepen its relations (see table 7) both as a focus over the next five years and further towards the horizon—in 10 to 20 years time.
| Factor of production or output demand: | Connectedness dimension | Criteria – summary | Focus countries | Horizon Countries |
|---|---|---|---|---|
| Capital | FDI | Source of technology Size of capital markets Existing trade and FDI links Proximity | Australia, USA, Japan and UK | Taiwan, Singapore, Hong Kong, South Korea, and China |
| Knowledge, ideas and technology | R&D linkages, Highly skilled people | Global R&D leaders Existing linkages Proximity Future R&D expenditure Shared technological specialisations Co-investment potential Receptiveness to R&D collaboration | Australia, USA, Japan, UK and Germany | Taiwan, Korea, China |
| Trade in goods and services | Trade: CEPs and other trade agreements and export promotion | Future growth prospects Distance and market size Receptiveness to CEP negotiations and trade liberalisation Comparative advantage Trade creation Trade diversion risks | Australia, USA, Japan and China | Korea, ASEAN states (particularly Thailand and Malaysia), Mexico |
In-bound tourism | Market size, distance & familiarity | Australia, USA, Japan, Korea, China and UK | ASEAN countries | |
Education exports
| Current and projected demand | East and North Asia (China, Korea, Japan, ASEAN states) | India, Pakistan | |
| Labour: | People linkages: Face-to-face contact, Migration flows, work and student visas | Language, skills. Means of complementing access in the other dimensions | UK and Pacific-Rim (major APEC economies) | India, Pakistan |
The focus countries for FDI are the USA, Japan, the UK and Australia. The focus countries for R&D are the four countries just mentioned and Germany. The proposed criteria for selecting partners for CEPs and for expanding the services trade focus on our nearer markets, which are along the Asia-Pacific Rim (as well as the UK for tourism). The horizon countries are located along the Asia-Pacific Rim and South Asia (see table 7).
An interesting and reassuring result from considering the countries that flow from the criteria is that many of the same countries keep appearing. Japan is a focus country for all six dimensions. The USA and Australia appear five times in the table. The UK and China appear four times in the table. A range of steps can be taken to deepen relationships with a focus and horizon countries. Some countries are candidates for CEPs. All could be the target of trade and investment promotion.
A key question is whether external policies will be mutually supportive so as to capture the synergies between flows of different factors. For New Zealand to become truly globally connected, policy initiatives need to be coordinated. The same core of countries appears in most criteria, which should facilitate synergies.
The practical policy implication is that when budget and other external initiatives come before Ministers, such initiatives should be seen through a lens that places a greater confidence in proposals for deeper relationships with the Asia-Pacific Rim countries or the UK and more scrutiny of proposals that emphasise other regions.
We are not saying that opportunities should be passed up because they are outside the Pacific-Rim. We are saying is that such proposals should be examined more closely. After this scrutiny, each proposal will have a clear intervention logic linking the individual global connectedness initiative and the package as a whole to improved productivity.It should be added that links do not solely define the character of our trade and foreign policy interests. These broader and non-economic justifications for external initiatives are fully acknowledged and should be kept in mind when using the proposed criteria.
New Zealand Trade and Enterprise and the Ministries of Foreign Affairs and Trade, Economic Development, Research, Science and Technology, Education and Agriculture and Forestry are among the agencies updating their international connectedness strategies. Their conclusions about countries to target for deeper relations are similar to those in this paper. The agencies just mentioned will have lead responsibility in ensuring that external linkages have the country and regional focus that is advocated in this paper.
The Treasury will have a role in implementing the country focus advocated in this paper. However, Treasury has responsibility for first opinion advice in a limited number of areas arising from its role as economic and fiscal advisor to the Government. The Treasury’s opportunities to influence the external focus of other agencies will arise mainly through providing second opinion advice on the outputs of agencies, through the vote/monitoring/budget co-ordination role, and through participation in whole of government processes/reviews—such as the GIF steering group and the immigration review.
