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Treasury Releases June Working Papers

Treasury Releases June Working Papers

The Treasury today released five working papers in the June instalment of its Working Papers series.

This quarter’s set of papers includes:

* Measuring Productivity using the index number approach (04/05)

* Theory vs reality: making environmental use rights work in New Zealand (04/06)

* Labour Force Participation and GDP in New Zealand (04/07)

* The Impact of Workplace and Personal Superannuation Schemes on Net Wealth: Evidence from the Household Savings Survey (04/08)

* Global Connectedness and Bilateral Economic Linkages - Which Countries? (04/09)

A full list of the abstracts from the five papers follows.

The papers can all be found at

The Treasury Working Papers series contains work in progress on a variety of economic and financial issues. The series aims to help to increase understanding of Treasury and its work, and to make this work available to a larger audience. The working papers build internal capability, as well as generating more informed debate on key issues. The series has been running since 1998.

The views expressed in the Working Papers are those of the authors and do not necessarily reflect the views of the New Zealand Treasury. The papers are presented not as policy, but with a view to inform and stimulate wider debate.

04/05 Measuring Productivity using the Index Number Approach Nathan McLellan (Treasury)

Abstract This paper provides an introduction to productivity measurement using index number techniques. Attention is given to the construction of productivity series using common index number formulae, the economic and axiomatic approaches to selecting an index number formula, and the use of chaining. Consideration is also given to measuring physical capital inputs and human capital, or quality adjusted labour, inputs. Numerical examples are used throughout the paper to illustrate the analysis.

04/06 Theory vs Reality: Making Environmental use rights Work In New Zealand Kevin Guerin (Treasury)

Abstract The potential advantages in flexibility and efficiency of environmental use rights (permits, quotas etc) over prescriptive regulatory approaches have been well surveyed, and are being extensively advocated in New Zealand at present as a tool for achieving sustainable development. So why have they not been more widely adopted here? How can we bridge the gap between theory and practice? At the structural level the barriers to adoption tend to be well known, or presumed, as being a lack of statutory frameworks and of central government guidance in terms of legal tools and the principles to decide between competing interests; ie, trade-offs. The main technical barriers appear to be the information costs (including scientific uncertainty) involved in defining the resource and determining an appropriate rights framework to optimise its use (in the widest sense covering existence, harvesting and depletion) given its specific characteristics. Even given these structural and technical barriers, there remains the task of explaining why, since those barriers are not insuperable, little progress has occurred. Other factors could include competing priorities for regional governments, the lack of pressure on resources (eg, water allocation in much of New Zealand), the difficulty of making contentious choices and strength of vested interests, the relative ease of using existing regulatory tools (the path of least resistance), and low benefits relative to costs in small markets particularly where geographical distinctions exist such as for water and certain types of pollution. This suggests that the best focus for central government may be on providing better guidance on how to use these tools, creating generic legislative frameworks to support their use, and providing, or encouraging joint provision of, the necessary institutions and systems in ways that allow economies of scope and scale across regions and types of rights.

04/07 Labour Force Participation and GDP in New Zealand John Bryant, Veronica Jacobsen, Daniel Garrett and Matthew Bell (Treasury)

Abstract New Zealand’s participation rates are high relative to the OECD, and high relative to a sample of similar OECD countries. However, there is scope for increasing participation, particularly among young women. Increases in labour force participation could make a contribution towards closing the income gap between New Zealand and wealthier OECD countries. In this paper we calculate the effect on GDP of hypothetical increases in employment from increased participation, taking into account the differences in productivity between new and existing workers. We estimate the output effects of alternative participation rates for the year 2001 and the complementary capital investment required to absorb the new workers.

04/08 The Impact of Workplace and Personal Superannuation Schemes on Net Wealth: Evidence from the Household Savings Survey Grant M Scobie and Trinh Le (Treasury)

Abstract The central question addressed in this paper is: Does having a workplace or personal superannuation scheme result in a higher level of accumulation for retirement? The paper presents a range of information about the participation and level of holdings in workplace and personal superannuation schemes based on data from the Household Saving Survey (HSS). While the proportion of people holding a workplace scheme is small (4% of unpartnered individuals and 20% of couples), the value of a scheme for those enrolled represents about 30% of their total net wealth. There is evidence that being enrolled in a workplace scheme is associated with higher levels of total net wealth. Furthermore we find evidence that those in workplace schemes have not fully substituted this form of saving for other vehicles. In fact in some cases there appears to be complementarity, whereby higher holdings in a workplace scheme are associated with higher holdings in other forms of savings. Two possible explanations for this arise. The first is that by enrolling in a scheme an individual acquires heightened awareness of the importance of retirement saving and saves additional amounts in other vehicles. An alternative hypothesis is that there may be some self-selection bias; those who have enrolled might be more inclined to save than the population as a whole. There is no direct way to use the data to discriminate between these two possibilities. However by having held constant a wide range of other factors (including age, income, ethnicity, occupation, etc) it is reasonable to suppose that the more likely sources of selection bias may have been controlled for. If this is the case then the lack of substitution may well have arisen from an “awareness” or “recognition” effect of belonging to a scheme. In this event, policies which foster enrolment might lead to greater retirement accumulation by those in workplace schemes.

04/09 External Bilateral Economic Linkages—Which Countries? Jim Rose and Wayne Stevens

Abstract Access to off-shore markets, technology, and ideas are important to greater productivity and higher living standards in New Zealand. Global connectedness requires deeper and richer links with other countries. However, as a small country, we only have the resources to focus on a handful of countries. Are there a key set of countries that New Zealand with which we should be seeking to form deeper bilateral economic relationships?

This paper reviews the benefits from deeper external bilateral economic engagements using the insights from the new literature on economic growth, which place great importance on trade; international integration; and local and cross-border knowledge spillovers from R&D and FDI. This paper then develops criteria for selecting countries as partners for deeper economic linkages across six global connectedness dimensions: FDI, R&D links, trade in goods, inbound tourism, education exports, and people linkages.

To account for the growing role of a number of economies on global trade, the partner selection criteria will identify two groupings of countries. The first grouping is focus countries: those countries that are of immediate interest for deeper linkages now and in the future. The second country grouping is horizon countries: countries that are likely to grow in their importance to New Zealand over the next 10 to 20 years. The list of focus countries should only be a guide and a means of prioritisation for external initiatives.

The key message of this paper is a greater economic focus by New Zealand on the major economies along the Pacific-Rim (and the UK). When budget and other external initiatives come before decision-makers, they should be seen through a lens that emphasise greater confidence in proposals for deeper relationships with the Pacific-Rim countries (or the UK), and slightly more scrutiny of proposals that emphasise other regions and countries.


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