Capital Market Integration: The Structure of the New Zealand Economy and its Capital Markets

The purpose of this review is to set out how New Zealand's equity markets relate to the economy how this relationship varies across countries of a similar size to New Zealand and how it relates to certain institutional arrangements. The review is brief reflecting the specification of this work for the taskforce that recognised in advance the potential paucity of data of sufficient quality to enable definitive inference. The investigation confirmed the severe data limitations associated with meaningful cross- country comparisons of institutional arrangements - for example the extent to which economic activity is conducted by entities that issue equity and if so whether or not it is traded - let alone their linkage with economic performance. The OECD puts together a report on each country infrequently usually focusing on a single utility and often with different focuses that would make them hard to compare. Often these are qualitatively descriptive and seek to propound guidelines (see for example OECD (2005)). Comparison of institutions is an inherently difficult subject for cross-country comparisons. At one level definitions vary widely across countries - e.g. New Zealand does not have a specific company category for cooperatives in contrast to many other countries - and at another level the structures themselves have to be understood in detail before inferring their role in equity markets. Taking the example of cooperatives it has been a theme of Michael Cook (for example Cook (2003) and Sykuta and Cook (2001)) that the pure form of cooperative is rare and that under this label there are many varieties of organisational form that attempt to solve market power governance and ownership issues in a wide range of settings; such that the label "cooperative" spans participation and nonparticipation in equity markets. Further forms of cooperative participation in equity markets vary to an extent that has various implications for their effects on organisational performance their contribution to the ownership market and the liquidity of equity markets. Firms labelled State Owned Enterprises (SOEs) also have this feature of wide variation (see Vagliasindi (2008)). It means that it is not sufficient to assess institutional arrangements by their labels or even a subset of the features of them if cross-country comparative work is to be useful.