New Zealand's patterns of comparative advantage

One of the major themes in New Zealand economic development thinking has been concerned with the balance of trade, industry and infrastructure policy that should accompany entrepreneurial activity. A new era of export development began in the early 1980’s with the introduction of a ‘more market’ approach. However, this did not mean the end of economic development thinking. There were concerns at the time that the non-food manufacturing sector would be decimated by the large reductions in rates of protection. This concern with the breadth of non-food manufacturing has run deep in the New Zealand psyche since the economy opened to trade early in the 19th century. New Zealand’s economic development thinking has focused on attempting to transform a very small economy, without major natural resource endowments, and distant from large foreign markets, into a nation with broadly based opportunities. This thinking was multifaceted in terms of the dispersion of output, employment, entrepreneurial and commercial opportunities. Economic development also had an international trade aim that might be glibly referred to as trying to move beyond the tyranny of distance and ruminants. The rapidly changing global trade environment over the last 20 years provides an opportunity to examine changing patterns of comparative advantage in 'free trade’ New Zealand. The case of New Zealand is interesting because it has always had economic features that differ significantly from most OECD countries - a very small domestic market, a manufacturing sector which shows some 'hollowed-out' characteristics, distant from major importers, a very strong comparative advantage in agriculture and recent comprehensive unilateral trade policy reforms. Nevertheless, New Zealand’s trade performance relative to OECD has been surprisingly strong. This paper reviews some trade aspects of economic development with a view to identifying the most promising export developments.