This paper looks at the impact of innovation on the performance of New Zealand firms. Results show that innovating firms grew more quickly than non-innovators but did not experience improved productivity outcomes. However, digging into the relationship between innovation and firm performacne reveals that firms in the manufacturing sector improved their productivity performance as a result of innovation. Firms that were younger or had access to international markets also tended to experience higher productivity growth following some types of innovation.
Achieving New Zealand's productivity potential outlines reasons why New Zealand has generally struggled to lift productivity over the last four decades and the broad areas of policy reform that would help in turning that around. It draws on recent research on New Zealand’s productivity and aims to give a more comprehensive and policy-relevant account than has been possible previously.
This paper examines various de facto measures of the extent of economic integration between New Zealand and Australia. The range of measures considered indicates that significant progress has been made towards achieving a single market across the Tasman. In particular, business cycles have become more synchronised and price changes for the same goods are strongly correlated across the two countries over the medium to long term.
Underpinning these interdependencies, Australia is New Zealand’s largest trading partner, trans-Tasman investment and migration flows are considerable and financial markets appear highly integrated. However, the available evidence suggests that Australia and New Zealand are not as economically integrated as the Australian states. The linkages between economic cycles and relative prices are tighter inter-state than they are across the Tasman, reflecting larger flows of trade and people. This indicates that the international border is considerably “thicker” than state borders within Australia.
On balance, the scope for further integration, with the aim of achieving a genuine trans-Tasman single economic market, especially in services, appears to be considerable.
This Commission Research Paper provides an assessment of New Zealand’s productivity performance for the whole economy, for individual industries and compared to other OECD countries.
The research shows that New Zealand has generally poor productivity performance – both at the economy-wide and industry levels. This underscores the need for our policy environment to be strongly supportive of productivity growth and for firms to have a clear focus on improving productivity.
This paper investigates the proximity of firms to their customers to assess the extent to which different industries trade their output over distance within New Zealand. At the sector level, the output of the primary sector is traded across distance to the largest extent, followed by the goods-producing sector and then the services sector. However, these broad results mask considerable variation at the industry level. The paper also tentatively assesses the correlation between tradability and firm productivity. This shows that firms in the goods-producing and service sectors that trade their output over distance tend to have higher labour productivity than firms located closer to their customers and more focused on the local market. The paper investigates three possible reasons for this link between domestic tradability and labour productivity. In short, the potential for firms to agglomerate, along with the scale and competition benefits that large markets allow, may underpin productivity improvements compared to firms that produce output only for the local market.
There is international interest in changes in the labour income share. In part, this reflects concerns that in a number of countries, real wage growth has not kept pace with labour productivity growth in an environment of rapidly changing technology. This paper investigates changes in the labour income share in the “measured sector” of the New Zealand economy and provides insights into the causes of these changes. Changes in the labour income share are decomposed into contributions from productivity growth and changes in quantities and prices in labour, capital and product markets. Industry contributions to changes in the labour income share are also examined, and comparisons with Australia are drawn. It turns out that the LIS has fallen in the measured sector of the New Zealand over the past 35 years in no small part because of sharp falls over three short periods. Aside from these falls, results also show that growth in real wages has been closely aligned with productivity growth and that there is no systematic relationship between strong productivity growth and falls in the labour income share. Indeed, the important message from the paper is that strong productivity growth sustains strong growth in real wages.
New Zealand has a poor productivity track record at the level of the aggregate economy and there is little evidence of productivity “catching up” towards that of leading economies. At the same time, there is a very wide distribution of productivity levels among firms within the same industries and it is at least possible that some New Zealand firms are among the most productive in their industry globally. In this case, the relevant question is why new technologies and production techniques do not diffuse from high- to low-productivity firms within New Zealand.
As such, this paper explores technological diffusion among New Zealand firms using a model of convergence in which a firm’s multi-factor productivity (MFP) growth depends on its ability to catch up to its industry’s productivity frontier. We find that convergence to the frontier is statistically and economically important, indicating a tendency for technology to diffuse from high- to low-productivity firms. The results also indicate that firms in the services sector have slower convergence speeds than firms in the primary and goods-producing sectors. This raises questions about the extent to which firms in some parts of the services sector are exposed to, and influenced by, the domestic productivity frontier.
We also extend the base model to assess the impact of exporting and foreign ownership on MFP growth and the speed of convergence. This allows for the possibility that by exposing firms to new technologies and larger markets, international openness may enhance incentives and opportunities to adopt leading production techniques, thereby increasing the speed with which firms catch up to the productivity leader. The results suggest that firms that are more open internationally experience faster MFP growth and speed of convergence. However, greater international openness at the industry level can slow the speed with which low-productivity firms converge towards the frontier. This may reflect the fact that exporting or foreign-owned firms tend to have relatively high productivity levels, so that faster MFP growth in these firms increases the average “distance to frontier” for other firms in the industry.