An econometric analysis of New Zealand's determinants of economic growth, 1960-1996 : a research thesis submitted in partial requirement for the degree of Masters of Applied and International Economics at Massey University

Abstract

The key purpose of this study is to analyse whether the generally agreed determinants of economic growth, such as labour force, trade, openness to trade, investment, inflation, research and development, human capital, tourism, government consumption expenditure and government education expenditure, impact significantly on New Zealand's growth. This study applies Auto-Regressive Distributed Lag (ARDL) cointegration regression analysis to time series data on the relevant variables for the period 1960 to 1996. Empirical models are based on neoclassical and endogenous growth theory models, and equations specified will fall under seven differing frameworks. The importance of economic growth and principally the sequence of New Zealand's growth, is the main reason for choosing New Zealand as the case study in this analysis. Such an empirical examination should enhance the knowledge and future development of economic growth and its determinants for New Zealand. Empirical evidence indicates that the endogenous growth model explains New Zealand's economic growth performance quite satisfactorily. Models incorporating the variables: growth of exports, public sector investment and tourism receipts, are positive and statistically significant to New Zealand's growth performance over this period. Export-led growth is favoured in this analysis. The need for massive state intervention in the New Zealand economy was officially declared over by the Fourth Labour Government in 1984. Radical and extensive macroeconomic and microeconomic reforms were undertaken, representing a revolutionary break from past policies of heavy regulation and import protection and the accompanying large fiscal deficits and high rates of inflation. Succeeding this period of major restructuring, the New Zealand economy has supported a strong recovery since 1991, outperforming most other OECD countries. The challenge now for policy makers, is to manage sustained economic growth, as growth slows under the influence of a shaky international environment.