Backgrounder: New Zealand's Economic Relationship with Australia and its States
[ Last Updated 13 December 2007 ]
This backgrounder summarises the chapter of Economic Development Indicators 2007 looking at comparisons between New Zealand and the states of Australia. The indicators report has been produced twice before (2003 and 2005) but this is the first time this comparison with Australia has been a focus of the report.
Why this indicator?
There is strong international evidence showing that borders act as real barriers to trade. For example, trade between geographically close regions in the US and Canada is much smaller than trade between distant provinces within Canada.
Considerable work has been undertaken to reduce the barriers to trade, labour and investment flows between New Zealand and Australia, and the countries have introduced a wide range of policy measures to encourage closer economic relations. New policy initiatives are now being undertaken under the Trans-Tasman Single Economic Market initiative.
As a result of these measures, as well as our geographical proximity, New Zealand is more economically integrated with Australia than with any other country. It is our largest trading partner, there is considerable cross-Tasman investment, and significant numbers of New Zealanders live and work in Australia.
New Zealand is similar in size to many of the Australian states and our relative performance will, to a degree, determine our ability to compete with those states in key areas, such as for highly-skilled workers and investment.
What did we find?
New Zealand's GDP growth rate has been in the middle of the Australian states. However, New Zealand's GDP per capita is lower than all of the Australian states other than Tasmania.
Differences in standards of living may be more pronounced than the figures for GDP per capita imply, as the Australian states benefit from inter-state transfers. New Zealand's relatively low output per capita is reflected in wages, which are lower in New Zealand than in the Australian states.
After severe declines in the late 1980s and early 1990s, New Zealand's employment growth has been high, only exceeded by Western Australia and Queensland since 1995.
Australia has become important for New Zealand's outward migration in the past 40 years, and is now the destination for a substantial majority of emigrating New Zealanders. This migration has accumulated to form a considerable New Zealand diaspora, which grew to an estimated 389,000 people in 2006, the equivalent of about 10 per cent of the New Zealand population. However, net migration from New Zealand to Australia is not much different from migration from some Australian states to others.
New Zealand is a net importer from Australia of a number of high value services, though we have a higher proportion of our workforce in finance, insurance and business services than do most Australian states.
Australia accounts for a large and growing proportion of foreign investment in New Zealand, which has led to a large negative net investment position from New Zealand's perspective.
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