Towards Building A New Consensus About New Zealand’s Productivity
There is a wide consensus that New Zealand’s productivity has been poor despite the comprehensive market-oriented reforms of the 1980’s. This consensus is based on estimates of New Zealand’s productivity growth measured either in terms of GDP per capita or total factor productivity (TFP). TFP is typically computed using growth accounting (i.e., calibrating a Solow model with fixed capital share). We argue that identification of the nature of the trend and the method of estimation are important elements of any study of productivity growth. Although difficult, it is quite important to determine whether the trend is linear deterministic or stochastic. It is equally important to measure the trend and TFP growth when there is a structural change (the reform in 1984 and the following adjustment periods) because factor shares, which are coefficients in the production function, are unstable. New Zealand data are short and undoubtedly badly measured and estimates of the standard errors of factor shares are quite large. Thus, even when we account for structural change, TFP estimate, which depends on the estimate of factor shares, is an unreliable measure of New Zealand’s productivity. There is evidence, both time series and panel data that productivity has improved in the 1990’s and by more than we thought. There is also significant evidence of increasing returns to scales (spillovers), which when ignored understates the estimate of the share of capital. Also, there is evidence of improving convergence of productivity between New Zealand and Australia during the 1990’s. The conclusion has policy implications. We need to re-think and scrutinise the current consensus regarding current estimates before we engage in planning programmes to lift productivity.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Romer, Paul M, 1986.
"Increasing Returns and Long-run Growth,"
Journal of Political Economy,
University of Chicago Press, vol. 94(5), pages 1002-1037, October.
- Paul M Romer, 1999. "Increasing Returns and Long-Run Growth," Levine's Working Paper Archive 2232, David K. Levine.
- Alberto Alesina & Silvia Ardagna & Roberto Perotti & Fabio Schiantarelli, 2002. "Fiscal Policy, Profits, and Investment," American Economic Review, American Economic Association, vol. 92(3), pages 571-589, June.
- Alberto Alesina & Silvia Ardagna & Roberto Perotti & Fabio Schiantarelli, 1999. "Fiscal Policy, Profits, and Investment," NBER Working Papers 7207, National Bureau of Economic Research, Inc.
- Schiantarelli, Fabio & Perotti, Roberto & Ardagna, Silvia & Alesina, Alberto, 2002. "Fiscal Policy, Profits, and Investment," Scholarly Articles 4685103, Harvard University Department of Economics.
- Alesina, Alberto F & Ardagna, Silvia & Perotti, Roberto & Schiantarelli, Fabio, 1999. "Fiscal Policy, Profits and Investment," CEPR Discussion Papers 2250, C.E.P.R. Discussion Papers.
- Alberto Alesina & Silvia Ardagna & Roberto Perotti & Fabio Schiantarelli, 2000. "Fiscal Policy, Profits, and Investment," Boston College Working Papers in Economics 504, Boston College Department of Economics.
- Peter Mawson, 2002. "Measuring Economic Growth in New Zealand," Treasury Working Paper Series 02/14, New Zealand Treasury.
- N. Gregory Mankiw & David Romer & David N. Weil, 1992. "A Contribution to the Empirics of Economic Growth," The Quarterly Journal of Economics, Oxford University Press, vol. 107(2), pages 407-437.
- N. Gregory Mankiw & David Romer & David N. Weil, 1990. "A Contribution to the Empirics of Economic Growth," NBER Working Papers 3541, National Bureau of Economic Research, Inc.
- Stefano Scarpetta & Andrea Bassanini & Dirk Pilat & Paul Schreyer, 2000. "Economic Growth in the OECD Area: Recent Trends at the Aggregate and Sectoral Level," OECD Economics Department Working Papers 248, OECD Publishing.
- Paul Conway & Ben Hunt, 1998. "Productivity growth in New Zealand: economic reform and the convergence hypothesis," Reserve Bank of New Zealand Discussion Paper Series G98/2, Reserve Bank of New Zealand.
- Friedman, Milton, 1992. "Do Old Fallacies Ever Die?," Journal of Economic Literature, American Economic Association, vol. 30(4), pages 2129-2132, December.
- repec:hrv:faseco:3353756 is not listed on IDEAS
- W. Erwin Diewert & Kevin J. Fox, 1999. "Can measurement error explain the productivity paradox?," Canadian Journal of Economics, Canadian Economics Association, vol. 32(2), pages 251-280, April.
- Bruce E. Hansen, 2001. "The New Econometrics of Structural Change: Dating Breaks in U.S. Labour Productivity," Journal of Economic Perspectives, American Economic Association, vol. 15(4), pages 117-128, Fall.
- Erwin Diewert & Denis Lawrence, 1999. "Measuring New Zealand’s Productivity," Treasury Working Paper Series 99/05, New Zealand Treasury.
- Chang-Tai Hsieh, 2002. "What Explains the Industrial Revolution in East Asia? Evidence From the Factor Markets," American Economic Review, American Economic Association, vol. 92(3), pages 502-526, June.
- Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July. Full references (including those not matched with items on IDEAS)