Ralph Lattimore - The New Zealand Economy

An Introduction

Ralph Lattimore and Shamubeel Eaqub

with contributions by Gary Hawke and Philip McCann

This book introduces the structure and performance of the New Zealand economy. It does so by interpreting key data series on the economy in a historical and global context. The book is designed to follow on from an earlier series (The New Zealand Macroeconomy) produced from 1991 to 2004 by Paul Dalziel and Ralph Lattimore.

The book focuses, first, on how the globalisation of the world economy over the last 30 years has transformed the New Zealand economy. Over this period, developing countries have grown more rapidly than high-income countries and become more embedded in global supply chains. At the forefront of these developments has been a set of emerging economies, including China, India and Vietnam, which have grown strongly in recent years. These changes in the global economic landscape are significantly influencing New Zealands performance and prospects.

The book focuses, second, on the continuing effects of the 2007 Global Financial Crisis (GFC). The ensuing recession and the difficulties associated with finding an exit strategy from the massive fiscal and monetary stimuli have left world financial markets in an uncertain state. In this environment, the book pays particular attention to capital and financial markets in New Zealand and overseas.

This book is targeted at two potential audiences. It is designed as an introductory text on the performance of the New Zealand economy for school and university students. It is also aimed at those who want a pocket guide to the New Zealand economy.

New Zealand has developed a reputation in recent decades for what many people consider to be continuous reform. The international trade policy expert Professor Razeen Sally is of the view (Sally, 2009) that New Zealand is one of only two countries in the world that have the capacity to deal politically with continuous reform (the other being Australia). That is a major strength for the nation but it puts a great onus on advisers and analysts in the private and public sectors, and the public at large, to understand how the economy is performing and why. This book is designed to help inform necessary debates on policy changes.

Because it is an introductory text, the book does not go into depth on most economic issues. However, two guest case studies are included which explore issues involved in the process of technological and geographic change in more detail, but in a way that makes these issues accessible to general readers. The first study, by Professor Gary Hawke, explores technical change and related productivity improvements. Technical change is often misunderstood, which leads to incoherent approaches to research and science policy. The second study, by Professor Philip McCann, introduces the new topic of economic geography. This area of research is gaining in popularity at present as it attempts to explain drivers of city and regional economic growth patterns based on productivity improvements unleashed especially by modern communications technology. Both case studies are designed as introductory resources for further exploration in these two important areas of economic research.

The authors owe a large intellectual debt to a number of economists who have contributed to this book through their journal articles and private conversations. Foremost amongst these are Edward Leamers review article in the Journal of Economic Perspectives (2007), the report of the World Banks Growth Commission (2008), Michael Bordos study of New Zealands exposure to the Global Financial Crisis (2009), Kym Andersons prodigious work on world trade distortions, Michael Reddell and Cathy Sleemans work on New Zealand recessions (2008), and Carmen Reinhart and Kenneth Rogoffs momentous study of financial crises (2008). Martin Wolfs column in the Financial Times has been unparalleled in bringing important research on global finance to the fore over the past three years.

The members of the Advisory Committee on Economic Statistics at Statistics New Zealand have contributed ideas in many ways. Special mention must also be made of contributions by Iris Claus, Adolf Stroombergen, Peter Lloyd, Javier Reyes, Martina Garcia, Przemyslaw Kowalski and Raed Safadi.

The Reserve Bank of New Zealand and Statistics New Zealand contributed valuable data for the book and we are very grateful to them for allowing us to use that data here. Oxford University Press kindly agreed to allow us to use selected material from the 2004 edition of Dalziel and Lattimores The New Zealand Macroeconomy: Striving for Sustainable Growth with Equity.

Thanks are also due to all the staff at Auckland University Press, and two anonymous referees, for their assistance and helpful suggestions.

The data used to construct the graphs and tables in the book, which will be updated quarterly, are available to readers at http://sites.google.com/site/eaqubs/

We apologise in advance for any errors or omissions in the manuscript and we welcome any comments readers might like to send.

Ralph Lattimore (Ralph.Lattimore@yahoo.com)
Shamubeel Eaqub (Shamubeel.Eaqub@nzier.org.nz)

New Zealand is a small open economy with an income level that places it among the richest countries in the world. As an open economy, New Zealand has vital links with the rest of the world via trade, migration flows, historic, diplomatic, sporting and cultural affiliations, and market connections in products, components and financial flows. These connections have been developing since the late 18th century, when regular transport and communication links were established with other economies. And as a small economy, with a population of 4.5 million, New Zealand is strongly influenced by offshore market performance through such global ties.