Julian Wood

By Julian Wood - 08/01/2020

Julian Wood

By Julian Wood -

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Growing Beyond Growth | Blog Series

INTRODUCTION

Oncoming long-term economic and demographic change will deepen the existing divide between our cities and our regions, meaning we must act to develop customised development pathways for the future of New Zealand’s small communities.[1] Already, we see economic activity aggregating in urban centres, with rural banks closing, and small towns struggling to find doctors.[2] Alongside this, upcoming demographic change will mean that while our cities continue to grow, our smaller communities will see their populations age, stagnate, or even decline. If we do not attend to this divergence of economic and demographic outcomes, we risk opening the door to broader societal division between people and communities in growing areas and those in stagnation or decline. Thus, while we need to ensure our cities grow well, we also need to ensure that growth and opportunities remain wherever possible for those who live away from our urban centres. This is essential if we are to secure a future where every person in New Zealand has an opportunity to thrive. Place-based regional development policy must be a key part of our planning.

Unfortunately, our engagement in the regions is often to jump into solving the “crisis” of the moment: immediate regional development issues like Auckland’s congestion or the lack of doctors in small towns. The history of short-term regional development policy features many “bridges to nowhere”: well-intentioned, yet ultimately ineffective projects.[3] These “regional development solutions” are often easy to politicise and implement and can produce “quick wins” for the planners or politicians behind them.[4] But they are expensive, and in many cases, due to a lack of evaluation, serve to amplify negative regional outcomes.[5] By focusing on the immediate, we can forget to turn our attention strategically toward the long term economic and demographic challenges. These challenges loom like a tsunami of change coming our way, as we will show in the next section. Now is the time to prepare; we have a moment to think clearly about our aims, opportunities and challenges, and how we should respond.

We must also consider whether the goals are focused in the right direction. Getting this focus right, we will argue, will require New Zealand to shift its regional development paradigm from one of “growth for all” to one that supports the development of customised regional development pathways. These pathways will both enable economic growth wherever possible, and consider how to enable other communities to manage decline in a way that doesn’t lock people out of future opportunities.

This is the ultimate goal of this paper: to encourage a clear, transparent and long-term approach to New Zealand’s regional development policy goals; goals that enable us to face the future with confidence. We need to look beyond the next one, two, or even three election cycles, and think about how we want to navigate toward a future ten election cycles away.

What are the long-term trends and forces acting on regional outcomes?

At a national level, New Zealand performs well on many indicators. For example, recent economic growth as measured by GDP has been good especially when compared to OECD averages. New Zealand’s overall age dependency ratio (53 percent) is well below other developed countries that are known to be ageing, like Japan (at 64 percent).[6] New Zealand’s fertility rates have been relatively high compared to comparative OECD countries.[7] Further to this, New Zealand universities also do well when compared internationally.[8]

When we look below the national level, however, a far more complex picture emerges. While there are many booming regions, like the Bay of Plenty,[9] it becomes apparent that not all regions are doing well. It is natural for economic activity to exhibit cyclical and spatial patterns of growth and decline, and the fact that New Zealand’s growth is not evenly spread across the country should not necessarily surprise or alarm us. Not only do national business cycles exist, but regional business cycles too.[10] This natural divergence often reflects the underlying difference in natural and physical endowments of geographic location, be it sunshine hours, mineral deposits, or population.

The functional economic relationships that exist across regions in a small yet geographically-spread economy like New Zealand’s are highly important and interdependent. Not only is the growth of urban areas linked to their proximity to major urban areas (like Auckland, Wellington, Christchurch, and Dunedin),[11] but it seems that the health of the major urban areas can be linked to the health of the regions, through primary production or tourism for example. It could be argued that Auckland’s services sector would not be as large as it is if rural and agricultural New Zealand did not exist to make use of many of the services or attract tourist dollars. New Zealand needs a “global Auckland” to succeed, but Auckland’s success also relies on the wider regions where the majority of the primary industries are based.[12] In other words, Auckland needs the regions, and the regions need Auckland. Similarly, one could say that in the South Island, Christchurch needs the wider South Island regions just as the regions need Christchurch.

There does, however, appear to be a new economic and demographic reality on the horizon. Many prominent New Zealand economic commentators and analysts highlight how some regions and towns persistently struggle on a range of social and economic indicators.[13] It seems a more divergent New Zealand is emerging, as our major cities pull away from the rest of the country. This divergence can clearly be seen empirically. When measures of economic complexity are mapped alongside measures of human capital, Auckland and Wellington appear to be relatively more sophisticated than smaller regional economies.[14]

With this in mind, the remainder of this section attempts to capture the long-term trends acting on all regions: globalisation and global regionalism, economic aggregation and agglomeration, and the changing nature of work. As we will see, these forces combine with long- term demographic changes (alongside some uniquely New Zealand circumstances) to paint a bleak regional picture over the next thirty years. Understanding these forces is a necessary step towards accurately assessing which potential regional development goals will best prepare New Zealand for “growth beyond growth.” That is, a future where we maximise economic growth wherever possible, while also managing decline where it is not, all in a way that gives every person in New Zealand a chance to thrive.

Global economic forces acting on the regions

Globalisation and global regionalism

New Zealand is well-described as a small island nation on the fringe of the global economy.[15] Professor Philip McCann for example describes New Zealand as “both small and extremely isolated,”[16] while independent economist and commentator Brian Easton argues that “New Zealand may well be the worst-located affluent economy.”[17] Unfortunately, New Zealand’s geographic location appears to negatively impact on its ability to leverage the gains that other nations can realise from globalisation and global regionalisation. This negatively impacts on New Zealand regions, primarily by the absence of the home market effect (which is the ability to harness the forces of economies of scale and aggregation close to large home markets), the commensurate high costs of transportation,[18] and therefore reductions in overall productivity.[19]

As McCann points out, New Zealand’s geographic isolation is a major disadvantage in the modern era of globalisation whereby “60-70 percent of all multi- national activities (trade, investment, sales) typically take place within the same global region in which the firm is located.”[20] While transportation costs have fallen, this hasn’t outweighed the fact that trade and development “is now far more driven by the advantage of proximity than in previous eras.”[21] Along these lines, Easton argues that globalisation has “exceptionally powerful effects when the reduced costs of distance combine with economies of scale.”[22] New economic geography and trade theory help explain this perspective, adding that firms will cluster to take advantage of economies of scale and large consumer markets.[23]

Domestic firms may relocate to larger urban areas, to take advantage of home market effects,[24] economies of scale, thick labour markets, and forces of agglomeration. Unfortunately, by world standards, even Auckland would not be considered to have a large consumer market, leaving the majority of firms in New Zealand unable to take advantage of the home market effect.[25] For the regions that are mainly involved in primary production, New Zealand’s geographic location makes harnessing these home market effects almost impossible. This highlights the reality that in order to ensure New Zealand’s future, we must continue to harness global markets via trade policy, have access to international capital and innovation, and use immigration policy wisely.

If McCann is correct, another important factor will be our relationship with those in the global economy in closest proximity to us. Many of these nations have a different cultural background and experience. As the economic centre of gravity moves toward Asia, a part of the globe we are situated in, we will need to secure ourselves as part of this global region.[26] The New Zealand Productivity Commission confirmed this view when they outlined how to minimise the negative impact of distance. They showed “that New Zealand’s exports are biased towards Australia, Northern Europe, and advanced East Asian countries,”[27] and that “bilateral trade patterns suggest that New Zealand could benefit more from closer, fast- growing markets by shifting its trade flows towards emerging market economies in Asia.”[28]

Economic aggregation and agglomeration

One of the impacts of globalisation is the emergence of what appears to be centripetal economic forces; where economic activity is agglomerating into global nodes or poles of production and innovation (areas of cumulative economic and population growth). In New Zealand these “growth nodes” are likely to be urban centres.[29] Research supports this in New Zealand where it “found productive spillovers from firms operating in areas with high skilled workers, and with high population density.” In New Zealand, increasingly this means that areas outside of the largest urban centres[30] will face what appears to be “Myrdal backwash” forces (cumulative economic and population decline).[31]

These forces are partly responsible for driving the growing economic difference between New Zealand’s main urban centres and the wider rural regions over a wide range of economic indicators.[32] The Government’s 2006 Economic Transformation Agenda (ETA) to build Auckland into a “hub of internationalisation and innovation” (which continues today) has the potential to reinforce these trends within New Zealand. So too does the current national level innovation and technology policy, as this “often appears to reinforce regional inequalities as more public resources (both in absolute terms and as a proportion of regional GDP) flow to richer regions due to their greater absorptive capacity.”[33] Within New Zealand, for example, 74 percent of current business research and development support and Callaghan Innovation funding since February 2013 has been captured by firms in Auckland (40% of total number of firms receiving grants), Canterbury (15% of total), Wellington (13.5% of total),[34] or the Bay of Plenty (5.5% of total). One potential avenue for further policy consideration within New Zealand is the role of “smart specialisation” to be used to build innovation in economies outside these major urban areas where there are high rates of specialisation in the localised area.[35]

These positive forces already appear to be cumulative and self-reinforcing, as far as the population growth of Auckland is concerned.[36] By 2043, for example, Statistics New Zealand’s medium population estimates suggest that Auckland will eventually account for 39.5 percent of New Zealand’s population: 2.2 million of 5.6 million people (up from 33.4 percent of New Zealand’s population in 2013: 1.4 million of 4.2 million people). In addition, while twenty-three Territorial Authorities (TAs) are projected to experience continuing population growth over the 2038-43 period, seven of these are clustered around Auckland.[37] Together with Auckland, these potentially still growing TAs will account for over fifty percent of New Zealand’s population and include Tauranga, the Western Bay of Plenty, Waipa, Hamilton City, Matamata-Piako, Waikato, and Whangarei.[38]

This highlights an interesting question around the potential of territories close to the centre of economic activity (or urban growth hubs); most commonly referred to in the literature as “second-tier” cities; In the New Zealand context, however, it might be more informative to call them “second-tier areas.” In the North Island, the TAs mentioned above fulfil this role. In the South Island, they appear to cluster around Christchurch: Hurunui, Waimakiriri, Selwyn, Ashburton, and Mackenzie.[39] There is potential for complementarities to be captured for regions close to an urban growth hub, thereby improving regional connectedness that could benefit all regions. Recent research into long-run urban growth supports this view, finding that alongside “land use capability, human capital, and sunshine hours,” “proximity to major population centres (especially Auckland)” positively impacted on urban growth.[40]

Policy can’t do anything about sunshine hours, but land use capability can be improved through the use of new technology and innovation policy that is more spatially focused on our rural areas and their primary-based sectors. Similarly the “upgrading of transport links that make it easier for firms and people to locate near to, but outside of, Auckland [or potentially Christchurch] while still accessing some of the amenity and productivity benefits offered by the city”[41] may be worth further consideration.

The changing nature of work

Not only is there a shift toward economic aggregation and agglomeration, but increasingly globalisation and technological change are impacting on the type of jobs that exist. As economists Shamubeel Eaqub and John Stephenson highlight, there has already been a broad employment shift away from the primary and goods producing parts of the economy into the service sectors over the last 60 years. This significantly impacts the regions due to their focus on the primary sectors. Alongside this shift is the potential future impact of technology. Increasingly, it seems that the jobs of the future haven’t even been invented yet, just as the jobs we do today may become obsolete. Some argue that 40-50 percent of current jobs will no longer exist in a decade’s time.[42]

Technological change plays a large role in this shift. To the extent that these new jobs are tied to new ways of doing things, there is a broad trend that new technology appears first in “frontier” or leading edge technology firms (which increasingly are located in innovation hubs) and then diffuses outward towards “laggard” firms.[43] Unfortunately, recent evidence by the Productivity Commission in New Zealand (as summarised by the Secretary of the Treasury) suggests that frontier firms are increasingly located in high density (urban) environments:

First, weak international connections may limit the extent to which new technology diffuses from the globally most productive firms to the most advanced New Zealand firms. Second, small and insular domestic markets may reduce diffusion to firms within New Zealand further away from the frontier, to so-called ‘laggard’ firms.[44]

International connections are key to harnessing global knowledge diffusion. This is where the difference between the “super diversity” of Auckland contrasts with much of the rest of the country.[45] This is not to say there are not frontier firms in the regions (or even global frontier firms in New Zealand’s primary industries, almost all of which exist outside of Auckland). Rather, it once again highlights the importance of innovation and global connections to the wider regions and the overall issue highlighted earlier; that New Zealand’s innovation funding is captured in the main urban centres.

Regional Research Institutes currently being established in partnership with business, at least in part, will address this need to link research, development, and innovation to the needs of regional New Zealand.[46] The first of these will be based in Marlborough to support the growth and success of New Zealand’s wine and viticulture industry.[47] The second will be centred in central Otago and support the use of “space-based measurements and satellite imagery … to meet the specific needs of our regional industries.”[48]

Demographic change

For a number of years now, Professor Natalie Jackson has been highlighting the broad-based demographic change on New Zealand’s horizon.[49] It is important to understand that this is not a uniquely New Zealand phenomenon:[50]

This situation is emerging because the developed world is now coming to the end of its 300-year–long demographic transition, during which falling infant and child mortality rates initially caused populations to become more youthful and ‘explode’ in size, as births increasingly exceeded deaths and ‘natural increase’ soared, and then to grow structurally older, as more people lived longer and birth rates fell – ushering in the end of natural growth.[51]

This holds for New Zealand. Even though the precise timing of the figures given below may change, the overall trends are robust. The reality is that New Zealand is entering a long-term period of structural population ageing combined with low birth rates (now below replacement levels at 1.99 per woman). Combined with the economic forces discussed above, not only are young people migrating towards the larger urban areas, but those people who remain in the regions are increasingly older.[52] Over the next thirty years, the vast majority of TAs will experience a shift from population growth to stagnation or decline. Figure 1 paints a picture of this change based on one dimension of the numbers outlined in Table 1.

Over the 2013-2018 timeframe, only 11 of the 67 TAs in New Zealand either experience or will experience the end of population growth or move into decline. By 2043, this number rises to 44 TAs with 15 projected to experience what is described as the new form of decline, an absolute decline from both net migration loss and natural decline. While these 44 TAs will only account for around 24 percent of New Zealand’s population, they cover the vast majority of the country geographically and regionally, as seen in Figure 1.

When looking at the age composition of population growth this broad-based regional decline is accelerated by the fact that “only 16 TAs will not see all their growth to 2043 at the 65+ years [age group].”[53] In short, in 10 national election cycles (thirty years), the majority of local governments will not only be experiencing population stagnation, but the vast majority will be experiencing far older populations with far fewer people in their prime working age (aged 15-64).[54] This reality means that the vast majority of rural New Zealand shouldn’t be planning for, or counting on population growth as a driver of economic growth.

Rather, as a rural community’s population ages and or declines it will likely come under increasing economic, financial, and social pressure. Fewer people of working age can mean less employment income in a community and less consumer spending and hence less business income. Local government income can also decline as there are fewer people and businesses paying rates. This can lead to lower levels of local government service provision. Similarly, fewer young people in a community can mean less education funding entering a community just as fewer people can mean less overall health funding.

Even a host of community services provided by volunteers can struggle as people leave. Overall, as the community retrenches, the costs of staying in the community rise in comparison to moving. Increasingly, people leave for better education or work opportunities, thus reinforcing the cycle of population ageing and decline. Those who remain can experience the brunt of a decline in service provision and economic opportunities. There is an increasing risk that they become locationally “locked in” and thus unable to take hold of future opportunities.[55]

Note: Endnotes #73 & #74 amended to be #56 & #57

New Zealand-specific conditions

Wide-ranging infrastructure pinch points

Three major infrastructure pinch points are on the 30- year horizon for New Zealand.[58]

  • The first pinch point applies to Auckland, and to a certain extent other growing urban centres. These centres will continue to struggle to meet their rapidly growing infrastructure needs like adequate housing, offsetting traffic congestion, the quality of waste management, and access to clean water, air, and environments.
  • The second pinch point is more relevant to the regions, as they attempt to renew their rapidly ageing infrastructure (largely built around the same time in response to the 1930’s Great Depression) while experiencing broad-based population ageing and decline. This, as Local Government New Zealand has pointed out, will mean “for some smaller, older or poorer communities, the need for services and infrastructure to maintain liveability and sustain economic activity is likely to outstrip their combined resources to pay.”[59]
  • The third pinch point highlighted by Treasury’s National Infrastructure Unit, is the need for our primary industries to grow to meet increased export demands in a sustainable way. They advise that with current technology and knowledge, we are “beginning to deplete some of our important natural resources and are reaching limits on some of the crucial inputs such as land and fresh water.”[60] Innovation is not only key to emerging high tech industries but also to ensure the sustainability of our primary industries nationwide. It will become increasingly important to tie innovation into the regional and primary base of the economy.

Once again, this underscores the need for current innovation and technology policy to ensure that resources flow to areas connected with our primary industries and regional economies, and the key role that Regional Research Institutes and smart specialisation has to play.

Local governance – the population competition

Incentives for harmful competition between regions compounds the infrastructure problem. Local government incomes are largely based on rates, which are collected based on land ownership,[61] and therefore tied to underlying population change.[62] This is problematic for both growing and shrinking places for different reasons.

If a region is growing the costs of growth are lumpy, so an increase in income from rates received for a particular development is unlikely to cover the development costs of expensive infrastructure to service this growth if additional water or waste treatment plants are required. For regions in decline, the need to renew ageing infrastructure as outlined above can become an overwhelming burden on an ageing and shrinking population. Within the current environment there are few incentives for local governments to co-ordinate infrastructure strategies for overall benefit. Instead, the majority of rural councils are placed in competition with each other for an increasingly scarce potential population. The stakes are high as population growth is linked to jobs and potentially even the placement of educational institutions, medical facilities, and roads within current population-based funding models.

This competition can lead to a modern form of “boosterism,” a range of news articles designed to boost the perceived outlook of a particular small town despite long-term negative projections.[63] There is also increasing risk of a return of “pork barrel politics” and a traditional form of “boosterism,” even in the small number of faster growing areas with rapidly growing populations.[64] These rapidly growing areas are also in competition with each other for national ports and infrastructure investment.

If adopted by local leadership, a more collaborative model may bring potential wellbeing, and even economic gains. This collaboration is fundamentally tied to the structure of funding and compensation models for local governance, which at the moment are all set by central government.

Summary: long-term trends and forces

The regions of New Zealand are being shaped by a combination of economic and demographic forces well beyond their control; the effects of globalisation, global regionalism, economic aggregation and agglomeration, structural ageing and low birth rates are momentous. The one certainty here is that fundamental change is at hand. All over the world major urban centres appear to be the economic “winners” under this scenario. Auckland will continue to be the overwhelming centre of economic activity in New Zealand, with Christchurch being the economic hub of the South Island.

The very forces that cement this growth in Auckland and other urban centres also create ‘backwash’ or negative effects for those furthest away from these hubs.[65] People do move to take advantage of the economic opportunities and jobs that are increasingly available in dense urban environments. Similarly, higher education institutions and population based funding formulas reinforce the pull toward an urban future. Once economic and population decline in a community takes hold, hospitals, schools, and even a whole host of community services (like the provision of libraries) face an uncertain future. Unfortunately, it would seem that the divergent regional outcomes we are seeing now will continue,[66] or even hasten, in the near future. If we are to secure a future where every person in New Zealand has an opportunity to thrive, not only do we need to ensure that our cities grow well, we need to ensure that growth and opportunities remain for those who live away from our urban centres wherever possible. Place-based regional development policy will be key in ensuring a future for all.


This is an extract from Julian’s research paper “Growth Beyond Growth | Rethinking the Goals of Regional Development in New Zealand” Discussion Paper. (Released 2017) 

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ENDNOTES

[1] For a definition and discussion of place-based regional development policy, see Box 2: People (Spatially blind) vs Place (Spatial) regional development policy: the ongoing debate.
[2] See Nikki Preston, “The $400,000 smalltown job that no one wants” New Zealand Herald, 23 February 2016, accessed on 11 October 2016, http://www.nzherald.co.nz/ business/news/article.cfm?c_id=3&objectid=11593835. See also Editorial, “Westpac closures a reminder that banks will keep closing smaller branches”, The Southland Times, 25 August 2016, accessed on 11 October 2016, http://www.stuff.co.nz/southland-times/opinion/83506285/westpac-closures-a-reminder-that-banks-will- keep-closing-smaller-branches, and Tamsyn Parker, “Technology spells end of branch banking” The New Zealand Herald, 3 October 2016, accessed on 11 October 2016, http://www.nzherald.co.nz/personal-finance/news/article.cfm?c_id=12&objectid=11717550.
[3] Examples include monorail initiatives or the actual Bridge to no-where see: Editorial, “No surprise monorail plan derailed” Nelson Mail, last updated 30 May 2014, accessed on 11 October 2016, http://www.stuff.co.nz/nelson-mail/opinion/10103200/No-surprise-monorail-plan-derailed. The bridge to nowhere “is the foremost monument in New Zealand to the many ill-fated attempts made throughout the country to farm marginal land… [with the] economic hardship and problems associated with the remoteness and difficulty of access result[ing] in many families abandoning their farms….The fine new bridge was used for only six years. This was a personal tragedy for the families who had endured 20 years of hardship for no gain.” Department of Conservation, “Bridge to Nowhere”, last accessed on 23 February 2017, http://www.doc.govt.nz/Documents/about-doc/concessions-and-permits/conservation-revealed/bridge-to-nowhere-lowres.pdf
[4] Others might argue that these are quick disasters.
[5] Simply improving infrastructure by building a road or bridge, if used in isolation from investments in human capital can in fact lead to regional economic leakage and brain drain. See OECD, “Regional Development Policies in OECD Countries”, Organisation for Economic Co-operation and Development Publishing (Paris: 2010).
[6] For New Zealand, the age dependency ratio is the sum of the 1-14 years and those over 64 years populations as a ratio of those in the working age population i.e. those aged 15-64 years. It measures the ratio of those “too young” and “too old” to work, to the working age population thereby giving a measure of overall labour market dependency. These are calculated from Statistics New Zealand, “Subnational Population Estimates: At 30 June 2015, Table 2:” http://www.stats.govt.nz/ browse_for_stats/population/estimates_and_projections/subnational-population-estimates-info-releases.aspx accessed on 15-4-2016. Author’s own calculations.
[7] Statistics New Zealand (2011) in Natalie O. Jackson, “Sub-National Depopulation in Search of a Theory – Towards a Diagnostic Framework”, New Zealand Population Review 40, (2014): 6.
[8] According to Universities NZ: “New Zealand’s universities rank amongst the best in the world with all eight universities making the top 100 in at least one subject” see Universities New Zealand, “New Zealand’s universities all rank in the top 100 in subject rankings,” 29 April 2015, accessed on 11 October 2016, http://www. universitiesnz.ac.nz/node/784.
[9] Juliet Rowan, “Bay’s billion-dollar building boom” Bay of Plenty Times, 17 October 2016, accessed on 17 November 2016, http://www.nzherald.co.nz/bay-of-plenty- times/news/article.cfm?c_id=1503343&objectid=11723057.
[10] Viv B. Hall, and John McDermott, “Regional Business Cycles in New Zealand: Do they Exist? What Might Drive Them?” Motu Working Paper 04-10, Motu Economic and Public Policy Research (2004).
[11]
[12] See Arthur Grimes et. al. “Eighty years of Urban Development in New Zealand: impacts of economic and natural factors,” New Zealand Economic Papers 50 (2016): 303-322.
[13] In this regard, New Zealand’s economy is somewhat of an international outlier as traditionally rural incomes have not been that dissimilar to incomes in cities due to the primary base of the economy.
[14] See: Alan Johnson, Mixed Fortunes: The Geography of Advantage and Disadvantage in New Zealand, Salvation Army Social Policy and Parliamentary Unit, May, (2015); Shamubeel Eaqub and John Stephenson, Regional economies: shape, performance and drivers, NZIER public discussion paper, Working paper 2014/03, (2014); and Omoniyi Alimi, David C. Maré and Jacques Poot, “Income Inequality in New Zealand Regions” in Paul Spoonley ed. Rebooting the Regions: Why low or zero growth needn’t mean the end of prosperity (Auckland: Massey University Press, 2016): 206.
[15] See Figure 16 in Eaqub and Stephenson, 13.
[16] See Jacques Poot, “Peripherality in the global economy” in Jacques Poot ed. On the Edge of the Global Economy, (Cheltenham, UK: Edward Elgar, 2004).
[17] Philip McCann, The UK Regional–National Economic Problem: Geography, globalisation and governance (Regions and Cities) (Routledge, 2016): 237.
[18] Brian Easton, Globalisation and the Wealth of Nations, (University of Auckland, Auckland University Press, 2013): 18.
[19] In their work on “Developing internationally comparable indicators, Golub and Tomasik (2008) have estimated that countries such as Australia and New Zealand face transportation costs for goods that are on average twice as high as those faced by countries in Europe.” in An International Perspective on the New Zealand Productivity Paradox, Alain de Serres, Naomitsu Yashiro and Hervé Boulhol, New Zealand Productivity Commission, (Working Paper, 2014/01, 2014): 23.
[20] The impact that proximity to markets has had on the New Zealand economy has been estimated by the Productivity Commission when they examined the reasons for New Zealand’s poor multi-factor productivity. Based on their estimation, “slightly more than half of New Zealand’s 27 percentage points MFP gap vis-à-vis the average of 20 OECD countries could be accounted for by the reduced access to markets and suppliers.” Alain de Serres, Naomitsu Yashiro and Hervé Boulhol, An International Perspective on the New Zealand Productivity Paradox, 24.
[21] McCann, The UK Regional–National Economic Problem: Geography, globalisation and governance, 239.
[22] McCann, The UK Regional–National Economic Problem: Geography, globalisation and governance, 238.
[23] Easton, Globalisation and the Wealth of Nations, 3. Easton describes globalisation as largely driven by the reduced costs of distance and the economies of agglomeration which reinforce the growth of large urban centres. See also Brian Easton, “Gutenberg and Globalization,” World Literature Today 82, no. 2 (2008): 47-50.
[24] This has the same effect as lowering transportation and trade barrier costs in more traditional economic models.
[25] One can illustrate the difficulty of realising a home market effect for New Zealand by drawing an economic circle with a 2200km radius (Sydney being our closest major trading city is 2161km away) centred in Auckland.
[26] see Paul R. Krugman, “Scale Economies, Product Differentiation, and the Pattern of Trade,” The American Economic Review 70, no. 5 (1980): 950-959.
[27] OECD Economic Policy Paper No.3, “Looking to 2060: A Global Vision of Long Term Growth”, OECD (2012). http://dx.doi.org/10.1787/888932718383. This paper estimates that by 2060, for example, 46 percent of world GDP will accrue to China and India alone, rising to 49 percent of world GDP when one includes Japan with China and India.
[28] de Serres, Yashiro and Boulhol, An International Perspective on the New Zealand Productivity Paradox, 19.
[29] For a comprehensive discussion on the use of Special Economic Zones to respond to locally driven needs, see Eric Crampton, and Khyaati Acharya, In the Zone: Creating a Toolbox for Regional Prosperity (The New Zealand Initiative, 2015). An example, as Local Government New Zealand point out smaller communities (typically with a population less than 10,000) can face a large infrastructure investment to meet national drinking water standards. Within their analysis, the costs of meeting these national standards can outweigh the benefits for the local population, see Local Government New Zealand, “Local Government Funding Review”, February 2015, last accessed July 2016 http://www.lgnz.co.nz/assets/Uploads/Our-work/Local-Government-Funding-Review.pdf. A more flexible approach (for example within a non-traditional SEZ) may mean the local community could choose a cheaper drinking water solution instead. This would also allow the local community to focus its scare infrastructure investment where it decides it would most benefit or at least have a net benefit for the overall community. Key to this approach however we would argue is subsidiarity and that the choice is being led by the local community.
[30] David C. Maré and Richard Fabling find “the existence of agglomeration effects that operate through local labour markets… [with] …evidence of productive spillovers from operating in areas with high skilled workers, and with high population density.” David C. Maré and Richard Fabling, “Productivity and local workforce composition,” in Geography, Institutions and Regional Economic Performance, Advances in Spatial Science Series, Riccardo Crescenzi and Marco Percoco eds. (Springer: Berlin and New York, 2012): 59
[31] The likelihood of being in an area experiencing backwash forces is highly context specific and untested in the New Zealand context. Canadian research into population found a cluster of common attributes (not all required) such as: the local economy being tied to primary production or resource extraction, the resources under exploitation being close to end of profitable life, the transportation costs of raw resources being higher than the transportation costs of finished products, the area being located more than an hour away from a major urban centre or not being on a major transportation route, and the inability to have a year-round tourism, due to weather constraints. Rachael McMillan, “The shrinkage pathway: Managing regional depopulation,” 227-228.
[32] Circular and Cumulative Causation (CCC) models of regional growth were formalised by Dixon and Thirlwall in 1975 following on from earlier work of Kaldor in 1970 and Myrdal in 1957. See Robert J. Dixon and Anthony P. Thirlwall, “A Model of Regional Growth-Rate Differences on Kaldorian Lines” Oxford Economic Papers 27, no. 2 (1975): 201-14; Nicholas Kaldor, “The case for regional Policies,” Scottish Journal of Political Economy 17, no. 3 (1970): 337-348; and Gunnar Myrdal, Economic Theory and the Underdeveloped Regions, (London: 1957).
[33] See Shamubeel Eaqub, Growing Apart: regional prosperity in New Zealand (Bridget Williams Books, Wellington: 2014) and Alan Johnson, Mixed Fortunes: The Geography of Advantage and Disadvantage in New Zealand, (Salvation Army Social Policy and Parliamentary Unit: 2015).
[34] Ministry of Business, Innovation and Employment (MBIE), Briefing on Investigating Regional Science Institutes, Annex 1: 1439 14-5 (2015): 3, Paragraph 13.
[35] Ministry of Business, Innovation and Employment (MBIE), Briefing on Investigating Regional Science Institutes, Annex 1: 1439 14-5 (2015): 3, Paragraph 14.
[36] For more information on the role of smart specialization within regional development policy, see OECD “Innovation Driven growth in regions: The Role of Smart Specialization” (2013), accessed on 16 November 2016, http://www.oecd.org/sti/inno/smart-specialisation.pdf.
[37] On a side note, a recent working paper by Eyal Apatov and Arthur Grimes examined the impact of higher education institutions on regional growth found that “a one percentage point increase in the university EFTS share (with universities almost always in main urban centres) is associated with a 0.19 (0.14) percentage point increase in the annual average population (employment) growth rate. The impact for polytechnics which are far more regionally and rurally dispersed was “weaker and estimated far less precise.” It seems likely, therefore, that part of the drivers of regional difference is a result of the spatial location of these universities and young people moving for higher education opportunities. Interestingly, this work also found “no evidence of complementarities between… [Higher Education Institutions (HEI) activities and proxies for urbanisation and innovative activity] and the presence of an HEI. Similarly,…[they found] no evidence that the presence of HEI altered the industrial structure of local areas.” Eyal Apatov and Arthur Grimes, Higher education institutions and regional growth: The case of New Zealand, Motu Working Paper 16-11 (Motu Economic and Public Policy Research, 2016): 1.
[38] See table 4 and figure 1.
[39] Statistics New Zealand, Subnational Population Projections, Author’s own calculations. It is important to note that the age compositions of these clustered areas are different, with Auckland having the youngest population overall.
[40] It is important to acknowledge that even with 50 percent of the New Zealand population in these wider clusters around Auckland as Alain de Serres, Naomitsu Yashiro and Hervé Boulhol, “An International Perspective on the New Zealand Productivity Paradox,” (2014):19 comment “creating the conditions for exploiting the externalities associated with large urban agglomerations may be more difficult, given the small size of the population.”
[41] Arthur Grimes et. al, “Eighty years of urban development in New Zealand: impacts of economic and natural factors”, New Zealand Economic Papers 50, no. 3 (2016): 303-322.
[42] The Treasury, Statement on the Long-Term Fiscal Position: He Tirohanga Mokopuna, New Zealand Government (2016): 23.
[43] Paul Spoonley, “Regional Futures: Diverging demographies and economies” in Rebooting the Regions: Why low or zero growth needn’t mean the end of prosperity, ed. Paul Spoonley (Auckland: Massey University Press, 2016).
[44] Everett Rogers, Diffusion of Innovations, 5th edition, (Simon and Schuster: 2003).
[45] Gabriel Makhlouf, Productivity: Innovation, Diffusion and Markets, Speech delivered to the Productivity Hub Symposium, December (2015): 3-4.
[46] For an overview of “super diversity” see “Super Diversity Centre: Superdiversity Centre for Law, Policy and Business,” last accessed on 22 February 2017. http://www. chenpalmer.com/superdiversity/overview/.
[47] “Regional Research Institutes were announced in Budget 2015. In Budget 2016, the Government set aside $40 million of additional funds to support the initiative, bringing the total funding in contingency to $65 million over four years.” Steven Joyce, Press Release 15 November 2016, “New Regional Research Institute Announced,” accessed on 16 November 2015, http://www.scoop.co.nz/stories/PA1611/S00258/new-regional-research-institute-announced.htm.
[48] Ministry of Business, Innovation and Employment, “First Regional Research Institute selected” last accessed on 30 November 2016. http://www.mbie.govt.nz/about/ whats-happening/news/2016/first-regional-research-institute-selected.
[49] Joyce, Press Release 15 November 2016, “New Regional Research Institute Announced.”
[50] See Natalie O. Jackson, “The demographic forces shaping New Zealand’s future. What population ageing [really] means,” NIDEA Working Papers 1, (National Institute of Demographic and Economic Analysis, University of Waikato, Hamilton: 2011).
[51] In fact, New Zealand’s relatively youthful population will mean that we will face issues that many other developed countries are already beginning to experience. Policy-wise this is both an opportunity to learn but also a risk if this means we face increased competition to entice international skilled workers and to retain highly skilled New Zealanders.
[52] Natalie O. Jackson, “Irresistible Forces: Facing up to Demographic Change” in Rebooting the Regions: Why low or zero growth needn’t mean the end of prosperity, ed. Paul Spoonley (Auckland: Massey University Press, 2016):51.
[53] Statistics New Zealand, “Births and Deaths: Year ended December 2015,” http://www.stats.govt.nz/browse_for_stats/population/births/BirthsAndDeaths_ HOTPYeDec15/Commentary.aspx#Total accessed on 10/10/2016.
[54] Natalie O. Jackson, “Changing demographics: overcoming denial,” paper presented at the New Zealand Society of Local Government Managers event, Wellington, 11 July 2016, slide 22.
[55] Richard Bedford at Paul Spoonely ‘A demographic Dividend – or Disuption’ (paper presented at Institute of Public Administration New Zealand, Auckland, October 3 2016) argued that short-term migration may offset some of these overall population impacts if one looks at the effective population of an area instead of the usually resident population. This is a potentially fruitful avenue for further consideration unable to be fully examined within this paper.
[56] Evolutionary Economic Geography theory of regional development emphasises the importance of previous place and time decisions for current outcomes. Path dependence occurs when the outcome of a system or process evolves as a consequence of the systems or processes own history. Ron Martin and Peter Sunley, “Path dependence and regional economic Development”, Journal of Economic Geography 6, no. 4 (2006): 399. This can mean, for example, that regions may end up at a level of development or growth that is “suboptimal and resistant to the equilibrating and self-correcting set of market forces.” Harvey A. Goldstein, “Theory and Practice of technology-based Economic Development” in Theories of Local Economic Development: Linking Theory to Practice, ed. James E. Rowe (Ashgate Publishing, England: 2009): 243. Historical events and decisions conspire to “lock-in” a region or place: slowing down or hindering necessary restructuring processes. For example communities that had expectations of working for the major local employer may struggle to adapt if the local employer experiences a major economic shock. In smaller communities the negative impact of major plant closure can then be compounded by the flow on impact on relative house prices, leading to a form of locational lock-in whereby even if the person or family wanted to leave, materially, this may no longer be possible.
[57] Paul Spoonley, Regional Futures: Diverging demographies and economies, 33.
[58] See Rainer Winkelman and Liliana Winkelman, Immigrants in New Zealand: A study of their Labour Market Outcomes, Department of Labour (1998): 58. Also, as noted earlier, New Zealand currently has an immigration points system that can award points to migrants who settle outside Auckland for a year. The early results of this policy appear to be mixed. On this, see Conan Young, “Skilled migrants fail to flock to regions” Radio New Zealand, 3 October 016, accessed on 10 October 2016, http:// www.radionz.co.nz/news/national/314797/skilled-migrants-fail-to-flock-to-regions.
[59] See National Infrastructure Unit, The Thirty Year New Zealand Infrastructure Plan, New Zealand Treasury, (2015): 7 accessed on 6 May 2016, http://purl.oclc.org/ nzt/i-1785.
[60] Local Government New Zealand, Local Government Funding Review, February (2015): 71.
[61] These investments are also not short-term silver bullets. As the OECD outlines, infrastructure and human capital investments require three years to positively influence growth, innovation investment only has a positive impact on growth after five years. OECD, Regional Development Policies in OECD Countries.
[62] Rates are usually tied to the productive capacity of the land being rated for example the difference between commercial and residential land.
[63] In 2013, 49% of local government funding came from rates, 15% from User fees and charges, 11% from current grants (most of which was from NZTA operational contribution to transport), 8% from capital grants (most of which was NZTA capital contributions to transport), 7% from vested assets, 5% from regulatory income and petrol tax, 4% from interests and dividends, and 2% from Development and Financial contributions. See Local Government New Zealand, Local Government Funding Review: 20, accessed on 30 November 2016, http://www.lgnz.co.nz/assets/Uploads/Our-work/Local-Government-Funding-Review.pdf.
[64] Spoonley, Regional Futures: Diverging demographies and economies, 37.
[65] Alongside the establishment of the Constitution Act in early New Zealand economic development came provincial development “boosterism” and “pork barrel politics.” Mark Derby, “Local and regional government – Early forms of local government,” Te Ara – the Encyclopaedia of New Zealand, updated 13-Jul-12, URL: http:// www.TeAra.govt.nz/en/local-and-regional-government/page-2. This early form of “‘Boosterism’, can be defined as “boosting the province’s prospects by actively encouraging new projects, preferably financed by others’ money.” Brian Easton, The Nationbuilders (Auckland University Press, University of Auckland, 2001): 17. National, for example has recently called Labour’s $680m light rail policy “pork barrel politics.” New Zealand Herald, “National says Labour’s $680m light rail policy ‘pork barrel politics”, 30 October 2016, accessed on 16 November 2016, http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=11738723.
[66] See section 2.1.2 for more information on backwash forces.

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