This is the second of a series of papers. The first has a secondary title of ‘Comparison with the OECD’ and the third is Productivity and Employment

Keywords: Growth & Innovation

The most obvious country to compare New Zealand with is Australia. How did they do in the relative GDP per capita stakes? This report does not go through the details of data preparation, which are exactly the same as reported in the Comparison with OECD paper.(1) The Australian series is that reported in Maddison, adjusted to a March year basis. (2) The accompanying table and graph show the ratios of New Zealand GDP per capita to that of Australia, and for Australia to the OECD, and New Zealand to the OECD.

GDP per capita.

Click on Graph for Fullscreen Image

The data for the graph is at the end of this paper

Australia and the OECD

Before looking at the relative performance of New Zealand and Australia it is useful to look at Australia against the OECD.

Australia too, began above the OECD average, and declined – on the whole more slowly than New Zealand (although there is a problem of measurement error as the next section discusses) through to late 1980s or early 1990s. Since then, it has expanded faster than the OECD, and is back ast the level of the early 1970s. The impression is that, other than this turn around, there are not the abrupt changes in its trend that New Zealand experience, nor is the cycle around the trend as strong.

Australia has never been below the OECD average. The lowest it reached in the early 1990s (a level New Zealand had last attained in the mid 1970s). According to the Maddison data, Australia would have been 8th in the OECD in 1998 behind the United States, Norway, Denmark, Luxembourg(?), Switzerland, Japan and Canada, and just above Netherlands. Australia was so close to Canada and Japan ii may well have passed them by now, which would rank it sixth in the OECD today.

Australia is now in its 11th successive year of perceptibly faster growth than the OECD average, which suggests that there has been a significant turn around. This report does not jump to any specific conclusions about the reasons for the Australian recovery of the 1990s, although economic commonsense suggests the 1980s must have laid the foundation for the perceptible improvement in relative growth. I have on the research agenda to see what I can find out about the turnaround.

New Zealand and Australia

New Zealand’s GDP per capita was just ahead of Australia through the 1950/1 to 1966/7 – by around 5 percent. In effect the two economies were growing at the more or less the same per capita rate, the minuscule difference of New Zealand growing .2 percent a year perhaps being due to measurement error.(3)

The 1996 wool shock changed the relativity, depressing New Zealand by about 10 percent, so that New Zealand was now 6 percent below the Australian GDP per capita level. It appears that Australia was not hammered in the way New Zealand was, partly because wool only half as important in its exports, but mainly because its fine wools for clothing did not suffer the big price drop that New Zealand crossbred wool for carpets experienced.

The pre-1966/7 minor relative decline continued after 1968/9, perhaps a fraction faster at .3 percent a year, but still possibly explained by measurement error, through to 1986/7. At that point the New Zealand GDP per capita relativity against the OECD fell sharply, while Australia’s genteel decline even eased back. The result was the New Zealand to Australia relativity deteriorated, through to about 1998.This may be due to the different handling of the Asian crisis of the late 1990s, when it has been argued that New Zealand monetary policy was too restrictive.

Today, New Zealand’s per capita GDP is about 75 percent of the Australian level, lower than the OECD relativity because Australia is above the OECD average.

It does not follow from this that had New Zealand been a part of Australia in the post-war era it would have grown more quickly. The exact institutional arrangements matter, and in any case some Australian states have grown more slowly than Australia as a whole.

The government may take comfort that its goal of growing at the Australian GDP per capita rate is achievel, and would result in New Zealand’s OECD relativity rising over time. This more cautious researcher simply notes the last four years, wonders whether it is post-Asian crisis cyclical, and plans to investigate further.

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Endnotes
1. B.H. Easton (2002) New Zealand’s Post-War Economic Growth Performance: Comparison with the OECD (Economic And Social Trust On New Zealand)
2. A. Maddison (2001) The World Economy: A Millennial Perspective (Development Centre Studies, OECD)
3. Australia and New Zealand measure the real output of the public service differently. The effect may enough to explain up to .3 percent p.a. difference in the volume growth rates. However, that will not affect the relative levels in the calibration year of 1990. B.H. Easton (1989) How Accurate are the GDP Statistics in the Long Run? (Hodge Fellowship Report; 9, mimeo, Wellington). Also In Stormy Seas p.281-283.

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