New Zealand’s productivity paradox: Part I

By Shaun Hendy 18/03/2010

Philip McCann is a Professor of Economics at the University of Groningen in the Netherlands who has developed a very interesting view of New Zealand’s economic situation.  After a talk by Philip in Motu’s public policy lecture series last year (‘Economic geography, globalisation and New Zealand’s productivity paradox’), and a lively discussion over at Public Address, a number of people made the connection between some of my work on scale in R&D (in particular, the increase in patents per capita with city size as discussed here) and McCann’s analysis.  The slides from his talk are available here.

I wasn’t able to make it to his talk, but I was put in touch with Philip earlier last year after I presented some of my results at a MoRST chat shop.  We have subsequently had some interesting discussions about innovation and scale, and then last week I was able to see Philip give a talk at the Reserve Bank.

It was an excellent talk (even Alan Bollard seemed to enjoy it), and it helped me get to the bottom of some of the things that Philip has been writing about:

This paper examines New Zealand’s poor productivity performance from the reform period onwards, from the perspective of economic geography.  Rather than employing institutional or free-market versus interventionist arguments to explain New Zealand’s low productivity, as is usually the case, the argument developed here is that the debate should be considered from a very different viewpoint.  If we adopt an economic geography perspective, there is nothing really paradoxical about New Zealand’s productivity performance.  As such, New Zealand’s productivity performance is rather more of a conundrum, a riddle, with a fairly straightforward solution.

McCann, P., ’Economic geography, globalisation and New Zealand’s productivity paradox’, New Zealand Economic Papers, 43: 3, 279 – 314 (2009).

So over a series of posts I would like to discuss some of Philip McCann’s ideas.  Do they offer an explanation for some of the data I have, and what insights do they offer for innovation in New Zealand?

But first, what is New Zealand’s productivity paradox?  The OECD put it this way:

The mystery is why a country that seems close to best practice in most of the policies that are regarded as the key drivers of growth is nevertheless just an average performer.

(OECD Economic surveys: New Zealand, 2003).

In other words, New Zealand’s recent productivity performance has been poor, and no one quite knows why.

The domestic discussion about productivity often focuses on the gap between NZ and Australia.  However, what I’ve found in my work on patents is that at the city scale, our cities perform no worse than Australian cities of the same size.  Indeed, Philip McCann argues that the productivity gap between New Zealand and Australia has the same underlying cause as the gap in patents:  Sydney and Melbourne.  Why are big cities crucial for both innovation and productivity?

Part II
Part III
Part IV
Part V
Part VI

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