No one really doubts that over the longer term a better performing New Zealand economy – absolutely or relative to the rest of the advanced world – would be likely to involve faster growth in exports. It isn’t that exports are a special or unique type of product, or that tax breaks or other regulatory distortions should be put in place specifically to target exports. It is simply that the rest of the world is a big place, and New Zealand is a small one. The best prospects for high living standards here, at least for any given size of population, involves successfully selling more stuff to the rest of the world (which enables us to consume lots of stuff produced efficiently in other places). The idea is implicit in the government’s own target to see exports as a share of GDP rise from around 30 per cent to around 40 per cent over the next decade or so. But the general notion isn’t original to this government – it has been a feature of New Zealand economic debate, and aspirations, for decades.
New Zealand hasn’t done particularly well on that score – nominal exports as a share of nominal share have barely changed over the last 25 years.
Nominal export values are, of course, thrown around by fluctuations in export prices – a particularly important consideration for a commodity exporting country.
But what about export volumes? I dug out the OECD’s quarterly data on real export volumes. I had a look at what had happened to export volumes for OECD countries (plus Latvia and Lithuania) since the end of 2007. There is no ideal starting date, but the end of 2007 is just prior to the widespread recession of 2008/09, and in many countries export volumes slumped during the recession and subsequently recovered and I wanted to avoid those short-term fluctuations..
If we look at total export volume growth since the end of 2007, New Zealand doesn’t look too bad. Total export volume growth was a little faster than for the G7 countries taken together, although a little slower than the EU countries or the euro area. When one allows for the rising role of global value chains, which have boosted gross cross-border trade in many European countries (and which aren’t a feature of commodity trade), perhaps New Zealand’s performance doesn’t look too bad.
But, of course, New Zealand has had much faster population growth than most OECD countries – in some sense then we’ve needed more export growth than, say, a country with no population growth might have needed. The OECD doesn’t have quarterly per capita data, and tracking down quarterly population estimates for many countries would take more effort than I have time for at present.
Instead, this chart simply subtracts the growth rate of real GDP since 2007 from the growth rate of real exports over the same period. On this indicator, we are right back towards the bottom of the OECD.
It isn’t necessarily a surprising result. On the one hand, we’ve had to divert real resources from other activities to undertake the repairs and rebuilding in Christchurch. And on the other hand we have chosen – as a matter of active policy – to increase the population quite rapidly, which meant that resources that might otherwise have been able to be used to grow export businesses (at a probable lower real exchange rate) have had to be used to build the domestic capital stock (public and private) a higher population needs.
But if it shouldn’t be a surprising result – just a logical outcome of shocks and choices – it certainly isn’t one suggesting we’ve made any progress towards positioning New Zealand to begin to close the gap between our productivity and material living standards and those in the rest of the advanced world.
croaking cassandra 
That sounds like what Dr Greg Clydesdale was saying before the Massey establishment threw him out:
” There is a danger that a sector of the economy is being augmented that is totally reliant on a
small domestic economy. Not only do these industries have limited potential for per-capita
growth but ‘deriving growth via factor inputs such as labour places pressure on infrastructure
such as transport and land supply, and ultimately have a further negative impact on growth
(ARC 2005). Finally, as the sector gets larger, it gains in lobbying/political strength and can
lobby for immigration regardless if it is the best interests of the economy as a whole. This
could be seen in Canada where the development industry has lobbied hard for high sustained
immigration levels (Ley and Tutchener 2001).”
Click to access clydesdale.GrowingPains.pdf
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1988 research – Immigration
There was a fork in the road – The left-hand fork posited globalisation – the right-hand-fork posited expansion of the domestic market
The choice was made – expansion of the domestic market and hope for economies of scale – didn’t happen
Poot’s 1988 modelling was based on the assumptions of economies of scale and technological change. However, there is little evidence that New Zealand’s industries benefit from economies of scale. New Zealand’s biggest and most successful industries such as dairying, tourism, fisheries, do not rely on domestic economies of scale. The model did not consider any diseconomies of scale such as the infrastructural congestion caused by increased population density. This influential research is now twenty years old and in that time, the industries most likely to benefit from economies of scale ie: manufacturing have gone into decline as more production is located off-shore. Globalisation would also imply focusing on off-shore markets is a more logical approach of obtaining economies of scale given the size of the international market vis-à-vis an expanded domestic market. In this way, globalisation has actually decreased the rationale for the free flow of labour for countries like New Zealand
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Just back from a nice stint in the Goldcoast and that city is humming. Local population of only 540k but tourists number 12 million a year. The shopping malls are already massive but massive construction is still continuing. All because of a beach. The Australians sure know how to get tourists to open up their wallets. Giant theme parks, Movieworld, Wet n wild water parks, Seaworld etc all designed to tempt the wallet. Massive apartment tower blocks everywhere.
We could easily have a similar setup in 90 mile beach but New Zealanders are content with 3million tourists throughout NZ and we are already screaming too many tourists. Our tourists get to spend minor amounts compared to what the Goldcoast offers where the NZ government and the taxpayer has to pay for the infrastructure because tourists have nothing to spend on.
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Not sure Northland’s weather matches that of the Gold Coast, but I’d have no objection if people wanted to try development up there.
Having said that, I’m not sure I can think of a country that has got rich (eg begun to reconverge with other rich countries) on the back of tourism. One former Reserve Bank Board member, with quite associations with the tourism industry, once somewhat dismissively described tourism as job creation for people at the bottom end of the econ scale. Not a bad thing in itself – people need jobs and incomes – but scarcely transformative.
Oh, and Australia has about 3.5m foreign tourists a year http://www.tourism.australia.com/statistics/arrivals.aspx
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I think you have to add some other numbers into the equation which our NZ stats just classify as tourists eg.
“Leisure arrivals (Holiday + VFR) continued to drive international arrivals growth, with an increase of 5.2 per cent over the 12 month period.”
which adds another 2 million of VFR(leisure arrivals) plus business conferences of 0.8 million which we all know as business paid holidays. That totals up at 6.1 million foreign tourists in Australia.
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Yes, that’s fine – still not 12m! Per capita tourism , on whatever measure, is materially larger here than in Aus.
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A quick internet search will show 12 million visitors to the Goldcoast. Local visitors from other states likely.
“The region attracts over 12 million visitors and approximately 12,500 new residents each year, making it one of the fastest growing cities in Australia. Delegates visiting the Gold Coast spend an average 3.8 days in the region – more than any other Queensland destination.”
http://www.gccec.com.au/quick-facts.html
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Thanks, Yes, the Poot 1988 book is high on my list of research/modelling papers about NZ immigration that I intend to write about during this year. Prior to it, the consensus among NZ economists was that the short-term demand effects were really important, and a problem, and that any long-term per capita gains were elusive (at best).
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I struggle to see the point of your Exports-GDP growth chart. It seems to me that the countries to the left have had very strong export growth, but it has failed to translate into activity or income growth, whereas the countries to the right have had activity/income growth as fast as or faster than export growth. While export growth may be a good thing, I would prefer actual income growth. Or have I misread the chart?
As an aside it seem countries to the right have generally been ones I would prefer to have been in since 2007 (and migration data probably says I am not the only one).
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It isn’t an ideal measure by any means – per capita real exports would be far better, but aren’t available on a timely basis for most countries. I guess I see it partly as a correction to simply looking at total export volumes (which should tend to be growing faster in more rapid popn growth countries. As to whether the exports have helped lead growth, or just been one shining light in an overall weak economy, I guess one would have to line up my gap with, say, real pc GDP growth (or perhaps changes in U – easier to access, a measure of excess capacity).
I certainly wouldn’t have wanted to be in Finland, Sweden or Israel.and would happily have been in several of those to the right.
But in respect of NZ my point is not that our economy has been weak (altho it has been) but that domestic demand pressures (rebuild and immigration) have helped crowd out export growth,
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Interesting stuff. For those who may not have seen, thought I’d share this recent paper from the ECB on saving-investment trends in the euro area (somewhat export related…..and sparked by the relative position of Greece in the second graph!!) – a real bobby dazzler of a note as the narrative is quite easy on the mind:
https://www.ecb.europa.eu/pub/pdf/scpops/ecbop167.en.pdf?2b3674e4d3a69b9162dacf10eb5047a5
cheers
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Looks really interesting. Thanks
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