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New Zealand firms: reaching for the frontier

An illustration of people traversing two mountain ranges

New Zealand Productivity Commission

Date published

1 April 2021

This report details the Commission’s findings and recommendations of its inquiry into the economic contribution of New Zealand’s most productive “frontier” firms, New Zealand Firms: Reaching for the frontier.

This inquiry focuses on a central but relatively underexplored aspect of New Zealand’s productivity performance – the economic contribution of its most productive firms. These “frontier” firms can play vital roles in turning around the country’s lacklustre productivity performance. They can improve national productivity by lifting their productivity closer to the global frontier, growing larger and diffusing innovation through the rest of the economy.

A striking finding of this inquiry is that the labour productivity of New Zealand’s frontier firms is less than half (45%) that of the best frontier firms in other small advanced economies (SAEs). These frontier firms in other SAEs operate at or near the global productivity frontier; in other words, they are world-leading. While New Zealand does have some world-leading firms, it does not have enough of them. Firms in successful SAEs are more internationally connected, so these countries also have much higher ratios of exports to GDP, and greater direct investment overseas (ODI).

New Zealand’s innovation ecosystems are not currently working well for actual and potential frontier firms. The report recommended Government develop a clear innovation strategy and take deliberate policy steps to upgrade New Zealand’s innovation ecosystems. Industry (firms and workers), researchers, Māori and government must be effective partners on the journey.

Frontier firms will be at the forefront of the innovation and productivity improvements needed to transition New Zealand to a low-emissions economy. This makes a lift in their performance all the more critical to delivering sustainable and inclusive prosperity in the long term.

The report presents 71 findings and 30 recommendations.


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