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Towards Building A New Consensus About New Zealand’s Productivity

  • W A Razzak

    (Labour Market Policy Group)

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.

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File URL: http://econwpa.repec.org/eps/ge/papers/0405/0405002.pdf
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Paper provided by EconWPA in its series GE, Growth, Math methods with number 0405002.

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Length: 40 pages
Date of creation: 06 May 2004
Date of revision:
Handle: RePEc:wpa:wuwpge:0405002
Note: Type of Document - pdf; pages: 40
Contact details of provider: Web page: http://econwpa.repec.org

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  7. Erwin Diewert & Denis Lawrence, 1999. "Measuring New Zealand’s Productivity," Treasury Working Paper Series 99/05, New Zealand Treasury.
  8. repec:hrv:faseco:3353756 is not listed on IDEAS
  9. Peter Mawson, 2002. "Measuring Economic Growth in New Zealand," Treasury Working Paper Series 02/14, New Zealand Treasury.
  10. 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.
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  13. 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.
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