Benchmarking New Zealand's frontier firms

Authors

Guanyu Zheng

Hoang Minh Duy

Gail Pacheco

Date published

25 February 2021

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New Zealand has experienced poor productivity performance over the last two decades. Factors often cited as reasons behind this are the small size of the domestic market and distance to international partners and markets. While the distance reason is one that is fairly insurmountable, there are a number of other small advanced economies that also face similar domestic market constraints.

This study compares the relative performance of New Zealand’s firms to those economies using novel cross-country microdata from CompNet. Stylised facts are presented for New Zealand relative to the economies of Belgium, Denmark, Finland, Netherlands and Sweden based on average productivity levels, as well as benchmarking laggard, median and frontier firms.

This research also employs an analytical framework of technology diffusion to evaluate the extent of productivity convergence, and the impact of the productivity frontier on non-frontier firm performance. Additionally, both labour and capital resource allocation are compared between New Zealand and the other small advanced economies.

Results show that New Zealand’s firms have comparatively low productivity levels and that its frontier firms are not benefiting from the diffusion of best technologies outside the nation. Furthermore, there is evidence of labour misallocation in New Zealand based on less labour-productive firms having disproportionally larger employment shares than their more productive counterparts.

Counter-factual analysis illustrates that improving both technology diffusion from abroad toward New Zealand’s frontier firms, and labour allocation across firms within New Zealand will see sizable productivity gains in New Zealand.

This paper is one of a number of research inputs into the Commission's inquiry into maximising the economic contribution of New Zealand's frontier firms.

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Tags Business and trade Labour market NZ productivity Technology and innovation

Productivity growth

The goal of our research is to facilitate a move from an economy that grows by using more “inputs” (such as labour or natural resources), to one where productivity plays a greater role in driving economic growth – essentially, working smarter, with greater financial and knowledge capital employed per worker.

Our research explores a wide range of productivity issues: employment, firm dynamics, technology diffusion, innovation, regional development, spatial and public-sector productivity.

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