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March Working and Perspective Papers Released

31 March 2006
MEDIA STATEMENT
Immediate Release

Treasury Releases March Round of Working Papers and Policy Perspectives Papers

The Treasury today released its March round of Working Papers and Policy Perspectives papers.

The papers released today are:

- The Role of R&D in Productivity Growth: The Case of Agriculture in New Zealand: 1926-27 to 2000-01 (WP 06/01)

- Migration and Economic Growth: a 21st Century Perspective (WP 06/02)

- Affordability of Housing: Concepts, Measurement and Evidence (WP 06/03)

- Financing Infrastructure Projects: Public Private Partnerships (PP 06/02)

- Impacts of a Potential Influenza Pandemic on Economic Growth in New Zealand (PP 06/03)

Summaries of the papers follow.

The full papers can be found at: www.treasury.govt.nz/workingpapers

ENDS

The three Working Papers released today are:

WP 06/01 The Role of R&D in Productivity Growth: The Case of Agriculture in New Zealand: 1927 to 2001

This paper seeks to better understand the relationship between (domestic and offshore) investment in Research & Development (R&D) and overall productivity growth.

In particular, it develops a working model that can be tested with historical data to generate estimates of the impact of R&D on productivity growth in the agricultural sector in New Zealand. The research underscores the importance played by offshoresourced knowledge to the New Zealand agricultural sector’s productivity growth performance and the importance of having a domestic capability that can receive and process the spill-ins from foreign knowledge to best capture the benefits of foreign knowledge for New Zealand. The paper concludes that the estimated average annual rate of return to domestic investment (both public and private) in agricultural R&D was about 17% over the 74 year period.

WP 06/02 Migration and Economic Growth: a 21st Century Perspective

There are gaps in New Zealand-specific theoretical and empirical literature examining the effects of migration trends on macro-economic performance. This paper reviews contemporary international literature and modelling work on links between migration patterns and economic performance. It surveys some of these models and then uses a growth accounting framework to think about the mechanisms through which migration influences GDP per capita growth. To do this the paper primarily focuses on how migrants affect labour utilisation and labour productivity and then moves to the potential implications for policy makers and suggests possible areas for adjustment.

WP 06/03 Affordability of Housing: Concepts, Measurement and Evidence

Housing affordability is difficult to define and there is no sector consensus as to the best way to measure it. This paper discusses the various methodologies associated with the definition and measurement of housing affordability. The paper also uses a range of measures to examine housing affordability trends in New Zealand over the last 20 years. The data reveals no long-term trend when considering all measures – different measures show different movements over time. Housing affordability has appeared to follow a cyclical pattern over the last 20 years. While affordability has been deteriorating on some measures (but not all), current affordability is comparable to 1996 and more favourable than 1986.

The two Policy Perspectives papers released today are:

PP 06/02 Financing Infrastructure Projects: Public Private Partnerships

The main benefits usually attributed to Public Private Partnerships (PPPs) are accelerated provision of infrastructure projects as a result of using private sector finance, and better value for money than can be obtained under conventional private sector procurement. This paper argues that most of the advantages of private sector construction and management can be obtained from conventional procurement methods. The paper concludes that PPPs are worthwhile only if the outcomes set out by the public agency are: specified in service level terms; specified in a way that performance can be measured objectively and rewards and sanctions applied; and likely to be durable over the length of the contract.

PP 06/03 Impacts of a Potential Influenza Pandemic on Economic Growth in New Zealand

This paper evaluates how a pandemic may affect the New Zealand economy. It models the impact of a pandemic as a simultaneous supply and demand shock. Two scenarios are analysed: a severe pandemic and a milder pandemic. The impact of a severe pandemic is estimated to be in the range of a 5-10% reduction in real annual GDP in the year of the pandemic. Over four years the estimated cumulative reduction in real GDP is a loss of 10-15% of real GDP. A milder pandemic would have a considerably less severe economic impact and may reduce GDP by the order of 1-2% in the first year, similar to a typical business cycle downturn.

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