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The Contribution of Foreign Borrowing to the New Zealand Economy

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  • Anthony Makin
  • Wei Zhang
  • Grant Scobie

    ()
    (The Treasury)

Abstract

New Zealand’s unrelenting current account deficits, its trade performance and high external debt level remain central to ongoing economic policy debates. However, what has been overlooked in the discussion of New Zealand’s economic relations with its trading partners is the positive contribution that foreign capital inflow makes to the nation’s economic development. International trade in saving between New Zealand and the rest of the world has potentially contributed more to its economic growth than international trade in goods and services. This paper views New Zealand’s current account deficits as symptomatic of an economic growth process in which the rate of the economy’s capital accumulation exceeds its domestic saving rate. Expansion of the domestic capital stock attributable to foreign saving leads to higher national output and national income per head, net of the servicing cost of foreign capital.

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Bibliographic Info

Paper provided by New Zealand Treasury in its series Treasury Working Paper Series with number 08/03.

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Length: 23
Date of creation: Jul 2008
Date of revision:
Handle: RePEc:nzt:nztwps:08/03

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Keywords: Foreign borrowing; national income; current account deficit; national wealth; New Zealand;

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Cited by:
  1. Julie Fry, 2014. "Migration and Macroeconomic Performance in New Zealand: Theory and Evidence," Treasury Working Paper Series, New Zealand Treasury 14/10, New Zealand Treasury.
  2. Daan Steenkamp, 2010. "New Zealand’s imbalances in a cross-country context," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, Reserve Bank of New Zealand, vol. 73, pages 37-49, December.

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