Analysis of Policy Reforms in the New Zealand Forest Manufacturing Sector

New Zealand experienced dramatic restructuring programsafter the Labor party won the national elections in 1984.Deregulation of price controls, removal of the log exportban, and privatization of public assets were the mainshocks to the forest sector. The purpose of this paper isto analyze the impacts of these reforms on wood and paperindustry cost, production, and cost efficiency. Unlikeprevious work, the effects of privatization and deregulationare compared to determine which shock had the mostinfluence on the forest sector. Results show thatproduction decreased, total cost increased, and costefficiency decreased after deregulation for the sector,and that deregulation was more significant thanprivatization for the wood and paper sectors. Inparticular, removal of the log export ban had the greatestimpact, while privatization had little effect on industryproduction and cost. This suggests that countries withcomparative advantages in wood processing who implementderegulation or privatization may suffer through a shortterm period of lower cost efficiency as the economyadjusts to higher input costs in those sectors. InNew Zealand's case, the adjustments most likely affectingefficiency have been investments in new technologies,which require time to attain maximum efficiency. Theresults are contrary to other studies that have predictedincreased efficiency as a result of privatization.