Economic Development Indicators 2007 - Questions and Answers
[ Last Updated 13 December 2007 ]
Why is economic growth important?
A key component to improving individual overall welfare is increasing the wealth of the nation. Economic growth provides both individuals and governments with options on using the increased wealth. For individuals it means more expenditure and lifestyle choices, for governments it means more options in providing public services.
Of course there is more to overall welfare than material standards, however without economic growth New Zealanders will not be able to achieve the improved quality of life to which they aspire.
In addition, in some sense New Zealand is in competition for mobile resources, like labour and capital. If New Zealand falls behind other countries, they can afford to pay more for the skilled labour that they seek and that we need to produce high value goods and services.
What is the purpose of the report?
The report collates a large amount of valuable information on New Zealand's economic performance – both on high level outcomes like economic growth, and also on the underlying factors like innovation and investment that drive growth.
The main purpose of the report is to inform future economic policy, to promote informed debate and provide a basis to engage with people over the direction of the New Zealand economy. The indicators also provide a basis to measure New Zealand's performance over time and against other countries, highlight our strengths and weaknesses, and help to evaluate the effectiveness of economic policy.
Why is there an emphasis on rankings and why use this set of countries?
Comparing our performance to that of other countries provides a way to benchmark ourselves. We use the OECD as these countries are close to New Zealand in terms of level of development.
At times we have used comparisons with Australia, separate Australian states, Denmark, UK and the US. This reflects our close connections with Australia and Denmark's similar size and industrial structure. The UK is often used in reference to New Zealand and, while the US is a far larger economy, it is a leader in a number of the indicators used in the report and therefore provides a useful "best practice" reference point.
Why use these particular indicators? They are different to the ones you used previously.
This report updates and expands the first two reports and incorporates a broader range of indicators to measure the drivers of growth and productivity.
When is the next update on the indicators due?
Most of the individual indicators are updated periodically as more up-to-date data becomes available. Another collated set of the indicators is likely in two or three years once enough time has passed for us to be able to see material changes in the indicators.
The Results
What are the key findings?
The report shows New Zealanders have a good quality of life and that the New Zealand economy overall has performed well over the last few years, with GDP per capita growing a little above the OECD average.
It also shows much of our recent strong economic growth is due to increasing levels of labour utilisation (high employment). This is good because being employed is important for people's material standard of living and other aspects of wellbeing. However, it does mean that in order to achieve more growth we need to look at improving labour productivity.
While our rankings within the OECD for many of the indicators remain low we are improving in areas such as investment, patenting and expenditure on research and development. And in many areas our economic foundations, such as our institutional framework for inflation control and our regulatory environment, remain solid.
So where does the future challenge lie?
While the economy is performing well overall, if New Zealand is to continue to increase incomes faster than the OECD as a whole, it will need to increase its labour productivity growth rate. The key underpinning drivers of productivity growth which the indicators suggest New Zealand is performing least well on, include:
- Savings rates and financial market development
- Innovation, including research and development
- Levels of trade and outward foreign direct investment
- Management skills and education
- Infrastructure
- Exchange rate stability and interest rate levels and stability
- The current account deficit.
What is the plan to address these challenges?
The government has already undertaken initiatives to improve New Zealand's performance in many of these areas. Key recent policies include:
- Increased levels of government-funded research and development and the introduction of tax incentives for business research and development
- The introduction of the Kiwisaver scheme
- Reductions in the corporate tax rate
- Initiatives to improve the quality of broadband services
- Innovation initiatives
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