How integrated are the Australian and New Zealand economies?
28 March 2013
This paper examines various de facto measures of the extent of economic integration between New Zealand and Australia. The range of measures considered indicates that significant progress has been made towards achieving a single market across the Tasman. In particular, business cycles have become more synchronised and price changes for the same goods are strongly correlated across the two countries over the medium to long term.
Underpinning these interdependencies, Australia is New Zealand’s largest trading partner, trans-Tasman investment and migration flows are considerable and financial markets appear highly integrated. However, the available evidence suggests that Australia and New Zealand are not as economically integrated as the Australian states. The linkages between economic cycles and relative prices are tighter inter-state than they are across the Tasman, reflecting larger flows of trade and people. This indicates that the international border is considerably “thicker” than state borders within Australia.
On balance, the scope for further integration, with the aim of achieving a genuine trans-Tasman single economic market, especially in services, appears to be considerable.