Why has Australia Done Better than New Zealand? Good Luck or Good Management?

The relative performance of the Australian and New Zealand economies has been the subject of many questions. Why, if New Zealand reformed so much, has the Australian economy performed so much better? Why are average incomes in Australia so much higher than in New Zealand? This paper explores some of the potential explanations for the different levels of labour productivity in the two countries and attempts to quantify the effects on productivity of a range of possible causal factors. Potential causal factors examined include the level of education, Research and Development intensities, regulatory policy differences, the interaction of productivity with participation, and the potential impact of geography, location, and population. It is the last of these possible explanations, the impact of geography, location and population that would seem to have the most potential to explain the differences in labour productivity levels that are currently observed. By comparing productivity levels in New Zealand with those of the Australian States we can estimate the potential magnitude of such effects. We find that the difference in productivity levels between Australia and New Zealand is not outside reasonable expectations once these factors are taken into account.