Global Connectedness and Bilateral Economic Linkages - Which Countries? (WP 04/09)

Abstract

Access to off-shore markets, technology, and ideas are important to greater productivity and higher living standards in New Zealand. Global connectedness requires deep and rich links with other countries. However, as a small country, we only have the resources to focus on a handful of countries. Are there a key set of countries with which New Zealand should be seeking to form deeper bilateral economic relationships?

This paper reviews the benefits from deeper external bilateral economic engagements using the insights from the new literature on economic growth, which places great importance on trade, international integration, human capital, and local and cross-border knowledge spillovers from research and development (R&D) and foreign direct investment (FDI). This paper will then use insights from the new literature on economic growth to develop criteria for selecting countries as partners for deeper bilateral economic linkages across six global connectedness dimensions: FDI, R&D links, trade in goods, inbound tourism, education exports, and people linkages.

To account for the growing role of a number of economies in global trade, the partner selection criteria will identify two groupings of target countries. The first grouping is focus countries: those countries that are of immediate interest for deeper bilateral linkages. The second country grouping is horizon countries: countries that are likely to grow in their importance to New Zealand over the next 10 to 20 years.

The key message of this paper is a greater bilateral economic focus by New Zealand on the major economies along the Asia-Pacific Rim (and the UK). When external initiatives come before decision-makers, they should be seen through a lens that places greater confidence in proposals for deeper relationships with the Asia-Pacific Rim countries (or the UK), and greater scrutiny of proposals that emphasise other regions and countries.

Acknowledgements

We are grateful for comments on earlier drafts of this paper from Brook Barrington, Tim Blackmore, John Bryant, Bob Buckle, Steve Cantwell, Gareth Chaplin, Nick Hurley, David Law, Struan Little, Geoff Lewis, Michele Lloyd, Yvonne Lucas, Meredith Stokdijk, and Vangelis Vitalis,and to seminar participants at The Treasury, Trade and Enterprise New Zealand, the Department of the Prime Minister and Cabinet, the Ministries of Economic Development, Foreign Affairs and Trade, Research, Science and Technology, and Agriculture and Forestry, and the Immigration Service. The usual disclaimer applies.

Disclaimer

The views, opinions, findings, and conclusions or recommendations expressed in this Working Paper are strictly those of the author(s). They do not necessarily reflect the views of the New Zealand Treasury. The New Zealand Treasury takes no responsibility for any errors or omissions in, or for the correctness of, the information contained in this Working Paper. The paper is presented not as policy, but to inform and stimulate wider debate.