Looking at the regional GDP numbers

Under this government money from the Provincial Growth Fund has been being flung round like confetti (this was last week’s example), with very little sign of any rigorous evaluation.  It isn’t clear to me whether things are worse under this government than they were before (recall the 13 bridges Simon Bridges was promising in Northland as Minister of Transport, to try to win a by-election) or whether this lot are just “better”
at the branding.   “Regional development” –  with no disciplined sense of what actually shapes economic performance – has certainly been a cause dear to the heart of all recent governments (and their MBIE bureaucrats).

SNZ yesterday released the annual regional GDP numbers.   As ever, these  numbers aren’t perfect –  nominal not real, and prone to revisions for several years –  but they are lot better than nothing, which is what we had until almost 20 years ago.

The Provincial Growth Fund seems to have been particularly concentrating its confetti in Northland, Gisborne, and the West Coast.  The Northland and Gisborne regions are estimated to have the lowest average GDP per capita in New Zealand (at about 70 per cent of the national figure).  As it happens, the West Coast doesn’t do too badly, with average GDP per capita 84 per cent of the national average in the year to March 2018.  Manawatu-Wanganui and Hawke’s Bay round out the bottom five regions (with average GDP per capita less than that on the West Coast).

The regional GDP data have been available since the year to March 2000.  Over the period since then, three of those five regions have had faster growth in per capita GDP than the national average (and by very substantial margins in Northland and the West Coast).  All five have recorded faster growth than Auckland and Wellington.  And if one goes back to 2000, one of the poorest five regions then was the Bay of Plenty, but it has recorded such fast (per capita) growth since 2000 that it has overtaken not just Hawke’s Bay but also Tasman-Nelson.

The picture is a bit less positive if one takes just the last decade, but even over that period growth in per capita incomes is estimated to have been stronger in Hawke’s Bay and Gisborne than in the country as a whole.

As a matter of interest, I also had a look at the unemployment data.  The regional data from the HLFS arem’t reported for the same groupings as the regional GDP data, but here is one chart I constructed.

regional U rates

Even at its worst this decade, the gap between the two lines wasn’t as large as it was 20 years ago.  Last year, it was almost as low as it has ever been.  Involuntary unemployment is a blight on lives wherever it is found, but these particular regions don’t seem to have been doing too badly.

Meanwhile, any guesses as to which regions had the slowest growth in average GDP per capita over the entire period from 2000 to 2018?

Wellington was worst, followed by Auckland as second-worst.

akld wgtn shares

The two regions combined have recorded a material increase in their share of national population, and yet their share of total GDP is unchanged (actually down very marginally).

What about Auckland alone?  If the picture is less dramatic than for Wellington, Auckland matters much more, due to sheer size (and population growth, actual and projected) Here is the latest version of a chart I’ve shown in previous years.

akld gdp pc to 18

It certainly isn’t monotonic.  There are reasonably good phases (which look to coincide with building booms in Auckland) and really bad ones, but there is no sign of the longer-term trend reversing.   An even-greater share of the population is in Auckland, and average output per person in Auckland is growing more slowly than in most of the rest of the country.  In high-performing economies –  at least those relying on something other than really abundant mineral resources –  the picture is typically the other way round.  Big city GDP per capita is typically much higher than in the rest of the country, and in most cases that margin is widening.  But not in Auckland.

Any why is Auckland’s population growing so rapidly when its economic performance has been unimpressive (to say the least).  That’s down to immigration policy.  That isn’t really a debateable point: the data show that (net) New Zealanders have been moving away from Auckland.  This chart was taken from a Treasury working paper I wrote about last year.

tsy akld popn

Our large-scale non-citizen immigration policy –  with targets not exceeded in per capita terms in any other OECD country –  is a practical centrepiece of the economic strategy of successive New Zealand governments.   You don’t hear the phrase now, but it is only a few years ago that MBIE openly talked of the policy as a “critical economic enabler“.  With the best will in the world no doubt, “critical economic disabler” would be a fairer description of the role immigration has played for decades (probably going back all the way to the post World War Two period).  It isn’t the fault of the immigrants –  simply looking for the best for themselves and their families –  but of successive governments and their officials.  They are particularly culpable as the evidence has mounted that their strategy simply is not producing the desired economic results.

The story in Wellington is different of course, but probably no less telling.  Here, local government likes to talk up the idea of a city built on high tech industries.   Central government likes that talk, and also throws (lots of) money at the film industry.    The information in the regional GDP tables doesn’t give a full picture, but there is a line for the component of GDP labelled “Information, media and telecommunications and other services”.  Here is the share of that sector in Wellington’s GDP.

wgtn ICT

Even in Auckland, the share of that sector has been falling –  so there may be something structural around, say, the falling real price of telecommunications going on  –  but nothing like as steep as that fall in Wellington.

New Zealand does macro policy reasonably well –  fiscal policy and (for all my various criticisms at the margin) monetary policy – but our structural policies are set for failure, and in delivering continued underperformance, are doing just that.    The immigration policies pursued by successive governments simply take no account of either our experience (70 years of ongoing relative decline) or our most unpropitious location.   If –  as I noted yesterday –  this is a bad place for basing outward-oriented business (and revealed preference suggests that is so), it is a bad place for governments to engage in “population planning”, importing large numbers of people.  One of the fastest population growth rates in the OECD combined with one of the poorest economic performances should be telling anyone with ears to hear (not our politicians) something important.  The specific relative failure of Auckland just makes that message more stark.

 

 

21 thoughts on “Looking at the regional GDP numbers

  1. Wellington definitely and I suspect Auckland as well could be a lot more productive if they addressed their housing and transport deficits.

    These deficits could be easily fixed. It just takes some basic understanding of geography and economics combined with political will.

    View story at Medium.com

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      • Michael the housing crisis is completely fixable, even in geographically constrained Wellington. I am actually quite p.. o… that it hasn’t been.

        Liked by 2 people

      • Don’t get me wrong. I totally agree housing is fixable. My (flippant) comment was aimed at the view that fixing housing would materially alter econ performance of Akld (or Wgtn).

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      • I believe I showed in my article -with substantial authoritative research links -that fixing our cities housing and transport deficits would lead to a significant improvement in NZ’s economic performance. If you disagree with that maybe you should be addressing that criticism at Bertaud, Nunns, Glaeser….

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      • Last I looked none of those authors focus on cross-comparative economic performance. My argument is not that fixing housing etc might not add a per cent or two or three to GDP, but that it will do almost nothing to close the huge gaps between productivity levels here and those in the frontier countries. Even Hsieh and Moretti argued only for a 9% lift in a couple of cities with stellar world-leading companies already (indicative of opportunity).

        As I’ve noted for several years, you could put 5m people on Kerguelen or the Chathams, with the best housing and transport policies conceivable, and they would struggle to generate anything like first world incomes/productivity.

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      • Hsieh and Moretti, like Nunns are not measuring all the agglomeration effects with their models, so the GDP effects may be larger.

        Also affordable housing and having good access to places of employment/economic activity may be a prerequisite factor for productivity growth i.e. it is a necessary factor for city based productivity growth. But other factors are needed as well, if NZ is to catch up with other advanced economies.

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      • But affordable housing clearly isn’t prerequisite globally – look at London or Zurich or San Francisco or…..

        And the (stylised) fact remains there are no evident global opportunities basing themselves in Auckland for long. That isn’t just because of housing (people then relocate tech firms to, say, San Francisco).

        There is little enough evidence of firms relocating in scale (to lift overall productivity) to US cities/states with sensible housing markets – places that might be an hour’s flight from really major global cities. It is very unlikely to happen here.

        But in any case, remember that the orthodoxy was that high immigration would have some catalytic effect on productivity. It simply hasn’t. There is no economic case for it in NZ. There is a good econ and social case for fixing for housing market – and if only wellbeing PM would do it, as her Lab and Nat predecessors haven’t. If it proves as catalytic as you are suggesting, we’ll see the evidence, and we might then have a sensible debate about whether the reopen large scale immigration. At present, support for NZ immigration policy – which the big and small parties fall over themselves to champion (and NZF, despite occasional rhetoric just goes along) is little more than ideology and a reluctance to review practices in light of experience.

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      • I think there is evidence that high housing cost does damage a cities economy. Even cities with huge incumbency advantages. like San Francisco and London.

        With regard to transport there is evidence from the UK that many of its second tier cities are struggling due to poor transport infrastructure in effect fracturing the marketplace at peak travel times. Leading to quite significant productivity effects.

        See the paper ‘Birmingham isn’t a big city at peak times: How poor public transport explains the UK’s productivity puzzle’
        https://www.citymetric.com/transport/birmingham-isn-t-big-city-peak-times-how-poor-public-transport-explains-uk-s-productivity

        Bertaud reports on similar research in his book -‘Order without Design -How markets shape cities’.

        I have no idea how much improving our cities housing and transport policies will close the gap with other developed countries -but I believe it will have a significant and measurable effect.

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      • It is actually quite surprising that our high tech mobile phones is labour intensive and require mega factories of low cost labour.

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  2. Soon you will be shouted down and compartmentalised
    It has been noticeable that PC brigade are flooding the Main-Stream-Media and Social Media, blaming anti-immigration advocates for the massacre

    See “Christchurch massacre ratchets up heat on anti-immigration”

    https://www.nzherald.co.nz/world/news/article.cfm?c_id=2&objectid=12214548
    This article propounds “Northern Hemisphere” examples even though there has been a fair bit here in NZ

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    • Immigration induced population growth in NZ is cyclical.

      Sometimes population growth is negligible because so many New Zealanders are moving overseas (NZ has one of the world’s biggest diaspora’s on a per capita basis). At other times population growth is quite large because less New Zealander’s are leaving.

      Mostly this is related to economic opportunities of New Zealand relative to Australia. As far as I can see it is not related to NZ’s distance from the rest of world -because Australia has the same distance problem.

      If less New Zealander’s were leaving NZ then probably over time the immigration rate would be reduced because there would be no need for NZ to replace its population loss.

      How can NZ improve economic opportunities in NZ compared to Australia? The obvious answer is to fix our cities so they are more productive and more welcoming….

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      • There are cycles – but they are mostly about NZers – but around a trend.

        There is no need for NZ to “replace” its “lost” population. Rather, the people leaving are a single about relative opportunities here (given relatively free movement between NZ and Aus).

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      • I agree that New Zealanders leaving NZ for Australia is a *signal*. But a signal of what?

        Is it that Australia is that much closer to the wider world? So New Zealander’s are being pulled back -in some sort of reverse colonisation pull?

        Or is it that New Zealand towns and cities do not provide the same opportunities as Australian towns and cities?

        In which case, improving our towns and cities could be beneficial and if it meant more New Zealanders chose to stay -the signal would be that economic opportunities had improved -which surely would be an economic benefit?

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      • NZers weren’t (net) moving to Australia until our productivity started dropping behind.

        I’ve got no problem at all (just wish our govts would do it) fixing housing (in particular), but the fact remains that having done so we’d stiill be starting with productivity far behind Aus and no credible model under which it would materially converge as a result.

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    • Quite possibly. I have even been tempted to re-post things I’ve written about (tangentially to the econ story) diversity, its limits etc.

      But actually, I count myself an interesting test. If I get screamed down for writing about the economics of immigration, it will just illustrate how demented the “debate” on the left (in particular) has become this week in both NZ and Aus (perhaps more broadly). All on top of the unrestrained emotional outpourings reminiscent of the worst of the Diana episode in 97. The attacks are awful, victims and families deserve all our sympathy and support, but for the rest of us there is something to be said for some stoic reserve and “keep calm and carry on” attitude.

      Liked by 3 people

      • You are so right. As a Cantab it’s been interesting to hear my AK friends expressing their relief that I am awash and sick of the relentless media hand-wringing, and have tuned to RNZ Concert to restore my sanity. They had guiltily wondered if they were heartless, having a similar response.

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    • Whitecloud: obviously everyone uses this massacre to push their agenda – sometimes it is a good agenda such as a quick but meticulous review of laws and databases controlling firearms – and sometimes unpleasant such as trying to blame Australia. But most New Zealanders have no agenda and then we see the underlying reality which is shared by everyone from the families of the victims to every Aucklander I meet – a feeling of deep sadness and of belonging to New Zealand. My Salvation Army store has a simple sign “We are One”. We must fight back against the identity politics of well-meaning proponents of multi-culturalism. New Zealander are very varied but we all are sharing the same grief, the same stunned incomprehension and we are all subject to the same taxes and benefits enforced by the same laws.

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  3. Thank you Michael for today’s blog. I am in the Bay of Plenty and on the Western Bay of Plenty District Council. I was Margaret Murray in the South Island where I served for several years as chairman of Waimairi District Council and chair of the Canterbury United Council. Then after the 1989 so called reform of local government I was CH City councillor and did not move to the Bay of Plenty until I married Douglas Benge. Hence my name Margaret Murray-Benge. It was a nasty mayoral campaign in CH and I vowed never to see CH or local government in my life.

    Well after a year I concluded the hill people were being walked over and I ran and have been on Western Bay since then.

    Your Blog today is very timely because we are in this sub region an amazingly successful area, but this new govt has rewritten the Transport plans and rules so well it is criminal and we are all suffering with no decisions from the NZTA and the months keep dragging by. We have so much congestion and we are all getting very angry. Do you have a copy of the Greens transport policy that they had included in the coalition agreement?– because we cannot continue with the way it is going. Frightening in fact. Please keep up your very fine work, I am grateful to you as I am sure others are too.

    Regards,

    Margaret

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