Julian Wood

By Julian Wood - 03/04/2018

Julian Wood

By Julian Wood -

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What can be done? | Smart Growth One

DISCOVERING DEVELOPMENT OPTIONS BASED ON INTERNATIONAL BEST PRACTICE

“Ahipara needs a boost. It needs to grow.” Then he [Malley] smiles. “But I’m glad it hasn’t as well. It keeps the surf uncrowded.”[1]

Fortunately, there is a rich regional development literature from both New Zealand and abroad that outlines an abundance of policy options for places to consider. In this section we will explore these options, discern how they might work together, and assess their overall likelihood of success. To help make sense of the potential pathways, we have created a framework for analysing these options, focussing on the two primary approaches: Smart Growth and Smart Decline policies.[2]

We have grouped smart growth policies into three components: local resilience and productivity; the local labour market; and the local capital market. Smart decline policy options have been broken down into two components: policy aimed at “de-growth” and policy aimed at relocation or exit. This section is structured following this five-part framework. We will begin by discussing smart growth policies and then transition to smart decline options.

SMART GROWTH

Smart Growth 1: Improving local resilience and productivity   

Three broad options are available to a local community exploring what it could do to improve resilience and productivity. It can:[3]

  • diversify what it produces and sells (product or service innovation);
  • diversify where or how it sells (product or service market innovation); and
  • improve how it makes things (process or management innovation).

Smart Growth 1.1: Diversify what is produced and sold

There are a number of policy options available to encourage a local area to diversify what it makes or sells. Communities can:

  • use unfocussed research and development grants or subsidies;
  • foster niches by protecting certain activities;
  • invest in a broad industry or sector (picking a winner); or
  • use a process of smart specialisation to discover and invest in something new.
Research and development grants and tax credits can have a positive impact on innovation

Innovation relies on investment. OECD research has highlighted both Research and Development (R&D) grants and tax credits encourage “the innovative activities associated with higher productivity growth.”[4] There was however, only a “relatively modest average impact… over time, especially in the case of tax credits, and their effectiveness is undermined by frequent policy changes or reversals.”[5] New Zealand research undertaken in 2015 by Motu confirms that R&D grants can have a significant impact on innovative outcomes.[6] Here, the relationship was stronger for the introduction of new products than for process or product innovation.

Looking overseas at areas that have transformed their economies through the use of targeted development grants can inform the story further. Anecdotal evidence from Israel’s ICT revolution points toward the role that direct and targeted government assistance has had.[7] Israel introduced “conditionally repayable loans covering part of the cost for any approved industrial R&D project[s] originating from the private industry that is aimed at developing a new exportable product,” where “[t]he loan is payable only if the R&D project ends with a profitable product.”[8] By drastically lowering the risk of R&D by private industry in exportable technology, Israel shifted from having a very small contingent of high tech industries to it now representing “almost 50% of total industrial exports.”[9]

It is an oversimplification, however, to attribute Israel’s ICT revolution solely to direct targeted research grants and loans.[10] The research suggests, instead, that geopolitical events and local choices also had a significant influence. These include:

  • the impact of French weapons embargos in the early 1970s;[11]
  • the demise of Russia in the 1980s and the subsequent inflow of highly skilled engineers and scientists from Russia to Israel;[12]
  • the impact of hyperinflation on existing Israeli firms over the 1980s; and
  • the choices of the initial chief science officer responsible for developing the economy, who was already well-connected internationally and given a modest budget to invest.

The initial focus of the direct research and development funding policy was broad, namely “the maximisation of industrial R&D without targeting any specific sectors or technologies.”[13] Rather than “picking high tech winners,” it seems that Israel’s initial policy was to “pick anything at all” so long as it was technology and export-related. This horizontal “pick all” technology approach was partly enabled by the fact that Israel started from a near-zero high tech baseline. The budgets grew quickly with the programme’s success.[14]

Overall, while there is a good case for the role of direct government R&D assistance, it is not as strong or as simple as anecdote might suggest. Despite a range of negative productivity-related indicators, New Zealand “has the highest share of R&D performed by small firms across the OECD.”[15] We still hold that there is a good opportunity to support small regional firms further via tax incentives or direct conditional assistance for R&D related activity. Deciding where to invest is key.

Picking winners or following “recipe” type development is unlikely to work

Another theme running through the productivity and resilience literature is the call for places to diversify or invest in upcoming industries like tourism, the green economy,[16] the “white economy,”[17] and or the “silver economy.”[18] This is, in other words, local places picking industry or sector winners. The results of these initiatives are often underwhelming in terms of overall impact,[19] and in the case of Japan, serve as cautionary tale of what happens when a place fails to consider local conditions. The evidence dictates that regions should focus on their local comparative advantage—what they can do better than other places—rather than anything they can do well.[20]

The fate of Japanese city Yūbari highlights that simply following a well-used “recipe” for success can lead to disastrous results. Within Japan, partly because of the top-down governance model, “almost all regions focus on internal migration, tourism and the silver and green economy.”[21] This results in fierce competition for tourists, domestic migrants and firms operating in these silver and green industries. Yūbari, followed Japan’s central government’s plans and invested heavily in tourism and melons as it tried to transition away from mining. It subsequently faced financial collapse as tourists decided that they would prefer to visit other more interesting tourist destinations.[22] By 2016, its population had dwindled to around 9,000 from a peak of 120,000.[23]

This tourism and other economic sector evidence from Japan is supported by case study evidence from the southern Italian towns of Sutera and Riace in Calabria. Here, investing in tourism infrastructure or services did not guarantee that tourists came. Instead, in Italy, tourism investment appears to work best in places nearer to population hubs.[24] Many studies also brought a timely reminder that building a tourist infrastructure is not costless. There is a critical need for additional tourism-related funding,[25] especially for smaller towns. This is a well-known issue in New Zealand in places like Franz Josef, a small town of 221 ratepayers servicing a tourist population of more than half a million people every year.[26]

On the green-economy side of things, renewables are another oft-cited investment strategy for regional development. Unfortunately, the overall evidence is very mixed on the efficacy of such initiatives. On the positive side, international research by OECD into renewable energy and rural development outlines that alongside the provision of cheaper sources of energy, “renewable energy deployment can increase and stabilise rural incomes…improving the overall innovation capacity in rural areas [and] empower[ing] local communities.”[27] They also note however, that investing in a top-down and spatially-blind way “can have unexpected and undesirable consequences,”[28] including the displacement of local workers, dependencies on central funding and the deepening of local absorptive capacity issues.[29] Adding to these risks, alternative energy projects in America have been found to be “susceptible to economic downturns.”[30] Other green-focused initiatives like the “eco towns” in Japan have not yet been evaluated in regard to their long-term effectiveness.[31]

Overall, while there are some positives outcomes from picking industry or sector winners the important lessons here centre around the need for this investment to be more than just a so-called “recipe for success.” To minimise the risks associated with picking winners, both central and local government need to work together, and the initiative must tie into some form of local comparative or competitive advantage.

Smart specialisation may hold the key to successful spatial innovation-focused investment

A framework known as smart specialisation has potential to minimise the risks outlined in the above case studies, and spatial investment policy more broadly. Smart specialisation, “a regional policy framework for innovation driven growth,”[32] is focused on spatial or targeted interventions and built around four design principles:[33]

  • clear objectives and intentions,[34]
  • a process of entrepreneurial discovery,
  • highly granular interventions (below sectoral level); and
  • the need for time-limited support.[35]

The first principle, having clear objectives and intentions that are evaluable, limits the potential for political capture and creates opportunities for lessons to be learnt and carried forward into further initiatives.

The second, entrepreneurial discovery, minimises the risk that a central planner “picks winners” and maximises the chance that innovative ideas and processes diffuse across regions. While rarely will policy-makers admit to picking winners,

[t]he temptation is high to buy consulting services that will write a nice report using any kind of figures and tables and thereby produce the illusion that the government has ‘sufficient information and knowledge’ to decide priorities in a top-down manner.[36]

Entrepreneurial discovery, on the other hand, relies on a process whereby a solution is discovered by bringing together local knowledge that is dispersed, decentralised, and sometimes hidden.[37] Cooperation across regions “with complementary capabilities and strategies”[38] is key to encourage the knowledge “capital” of one place to “spill over” into complementary activities in others, encouraging the development of new technologies and knowledge-based production chains across the economy. National and regional strategies should be aligned or “synchronised” where possible.[39] Instead of a central planner picking winners, the process of entrepreneurial discovery means that just listening to local entrepreneurs is not sufficient, the discovery process and policy must be centred around them and small and medium sized enterprises.[40]

The third principle of highly granular and tailored interventions also avoids the temptation to pick sectors to invest in. This approach means regional decision makers and planners wouldn’t say “let’s focus on the tourism sector, or the green economy or even products for export like Israel did.” It requires a more granular, spatial approach; in essence a trial of something hitherto “unknown” or new. It also acknowledges that “policy resources must be prioritised on those activities, technologies or sectors where a region has the most realistic chances to develop wide-ranging and large-scale impacts which also develop and build on many different local and interregional linkages and connections.”[41] In other words it helps a region to realise its comparative and not just competitive advantage.

The fourth design principle, that government assistance is time limited, is key to sustainable development. “The rationale to discontinue support is not about success or failure” writes Dominique Foray, “but rather that the considered activity is no longer new.”[42] The importance of time-limited support is reinforced by the work of Ron Boschma and colleagues, who argue that any intervention aimed to “shield” or “nurture” a particular niche must also “empower” it by requiring it to compete unassisted after a defined period.[43] Indeed, regional development policy within Japan’s mountain towns highlights that ongoing public intervention can disempower communities from discovering their own way forward, as they become increasingly dependent on public money.[44]

Overall, the evidence suggests that smart specialisation minimises the risk associated with spatial interventions and has great potential to be used to discover where and how to invest in highly-targeted regional interventions. The final form of these interventions will be time-bound and place-specific. Because of this particularity, it is unlikely that an extremely broad policy (like planting a billion trees) or a policy applied to all regions (like all regions focussing on tourism) will be uncovered. Instead the process itself should help enable some new regionally-based innovation to arise.

Smart Growth 1.2: Diversify where products are sold

A second way to improve local resilience is for local firms to have access to a wide range of product markets. Central government should continue to focus on maintaining access to international markets via international trade agreements. The ability for regions to influence these trade agreements is limited, however. Also, as highlighted in our previous paper “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.”[45] One way for local communities to encourage these linkages is through the use of skilled and unskilled migration policy. Recent New Zealand evidence supports this, finding that New Zealand firms that hire recent migrants are more likely to enter new export markets.[46]

Surviving in these markets over the long term is critical. As the Productivity Commission outlined, in order to survive, local firms must be efficient, dynamic, and able to respond quickly to market signals, highlighting the role that improvements in domestic competition policy can have in enabling local firms to compete locally and internationally.[47] This is especially important for the services sector as it transitions from volume-based, commodity growth to knowledge intensive and high- value-add growth.[48]

The evidence points towards the importance of not only ensuring access to diverse markets, but also making sure that any interventions taken do not endanger this access or stifle the local market by unreasonably protecting local firms from competition. Similarly, one can argue that access to unfair competition (if local firms are having to compete with heavily protected firms overseas) is also unwise for the local economy. Overall, regions have relatively limited potential to influence where products are sold, but they can be more agile and efficient.

Smart Growth 1.3: Improve how things are made

Some form of innovation, be it process or management- related, is key to improving how things are made. As already examined above, OECD research has highlighted both Research and Development (R&D) grants and tax credits encourage “the innovative activities associated with higher productivity growth.”[49] However, another way forward is for firms to learn from prior research from outside sources. This ability to learn from others is known in the literature as a firm’s absorptive capacity; the higher it is, the more likely that firms will adapt to global best practice. This absorptive capacity combines with patent and copyright laws and regulations to set the way that information and innovation diffuses across firms and regions.

In New Zealand, research suggests that our bigger firms make good use of innovation frontier information, but this doesn’t appear to trickle down to smaller firms, highlighting a problem with the diffusion of information across New Zealand firms.[50] Similarly, a recent examination of the absorptive capacity of firms reinforces these findings by showing that small, locally-owned firms with no professionals operating in the primary sector tend to have lower levels of absorptive capacity than their respective counterparts.[51]

Migration policy that enables regional firms to attract and employ highly skilled migrants and New Zealand returnees does seem to be an important component of firm-level innovation, diffusion and absorptive capacity for New Zealand. Research that looked at the links between new arrivals and firm-level innovation found that “firms that hire more recent migrants and firms that hire more recent returnee New Zealanders tend to innovate more than other firms.”[52] [53] In terms of diffusion, both new migrants and returnee New Zealanders have a positive role to play, most likely through their positive influence on the skills composition of the workforce.[54]

Recent research by Paul Conway from the Productivity Commission argues that New Zealand needs an “[a]ll- of-firm innovation mind-set to lift the capability of firms to absorb new technology, and maximise its benefits… [helping firms see that] working on the business is just as important as developing new and improved products.”[55] Industry and sector organisations are also likely to play a lead role as information providers.[56]

Smart Growth 1 – Conclusion

In summary, policies should aim to improve resilience and productivity. Diversification has the potential to help improve the resilience of a local community in the long term. R&D grants and tax credits can positively influence the innovative activity of firms and are a potential way forward, but are costly and prone to policy reversal. Solutions based on being open to migration—especially skilled migration—appear key to improving innovation, diffusion, and the absorptive capacity of local firms. Picking “industry or sector” winners, is particularly high- risk for local communities, especially if these interventions are driven from the top down or funded centrally. Creating dependencies and crowding out local innovation are the key risks here. Similarly, centralised funding can create unhealthy silos of interventions, whereby locations hoard information and innovation, thus slowing down the diffusion of information spill-overs. It is therefore important to minimise, where possible, obvious risks around picking winners or creating dependencies. Using the spatial smart specialisation model shows promise in this regard, as it not only minimises these risks but aims to enable regional knowledge spill-overs, by encouraging co-operation across regions.


This is an extract from Julian’s research paper “Taking the Right Risks | Working Together to Revitalise our Regions” Policy Paper. (Released 2018) 

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ENDNOTES

[1] David Fisher, ‘Heartbeat: Ahipara, Where Not Much Has Changed since the GFC Stopped the Boom-Town Talk’, New Zealand Herald, 23 August 2017, http://www. nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=11900276.
[2] In practice, many of the policy options discussed below are not as neat as this framework may suggest. It is inherently difficult to delineate and separate one from another, as they are often inter-related. The groupings, then, are the author’s best attempt at ordering a vast and complicated literature.
[3] Resilience in this context can be defined as a particular locations ability to contain a negative economic shock, see OECD (2017) “Economic shock and changes in global production structures: methods for measuring economic resilience”.
[4] Ben Westmore, ‘Policy Incentives for Private Innovation and Maxinisibg the Returns’, OECD Journal: Economic Studies 2013/1 (2014): 121–63.
[5] Alain de Serres, Naomitsu Yashiro, and Hervé Boulhol, ‘An International Perspective on the New Zealand Productivity Paradox’, New Zealand Productivity
Commission, no. Working Paper 2014/01 (April 2014), https://www.productivity.govt.nz/sites/default/files/international-perspective-working-paper.pdf.
[6] Adam Jaffe and Trinh Le, ‘The Impact of R&D Subsidy on Innovation: A Study of New Zealand Firms’, Working Paper (Motu, 29 June 2015), https://www. productivity.govt.nz/working-paper/the-impact-of-rd-subsidy-on-innovation-a-study-of-new-zealand-firms. This potentially raises a question mark over firms’ absorptive capacity within New Zealand (see more on this in section 4.3 below).
[7] The use of information and data in regard to Israel as an example of regional development within this paper is without prejudice to the status of the Golan Heights, East Jerusalem and Israeli settlements in the West Bank under the terms of international law. It is also important to caution against the thinking that investing in a particular area and that this investment is successful will be a panacea for poverty. Kurzer (2007) when looking at innovation in Israel points out that even being a world leader in the ICT sector can mean that gaps widen as wages for those in the successful sector grow while wages for those who cannot make the transition into the growth sector stagnate. “Poverty rates [In Israel] are twice the average of other developed countries and the gap between the wealthy and the rest of society has widened.” Paulette Kurzer, ‘Book Review: Innovation and the State: Political Choice and Strategies for Growth in Israel, Taiwan, and IrelandBreznitzD. (2007). Innovation and the State: Political Choice and Strategies for Growth in Israel, Taiwan, and Ireland. New Haven, CT: Yale University Press.’, Comparative Political Studies 45, no. 8 (August 2012): 1063–67, https://doi.org/10.1177/0010414012445947.
[8] Dan Breznitz and Darius Ornston, ‘The Revolutionary Power of Peripheral Agencies: Explaining Radical Policy Innovation in Finland and Israel’, Comparative Political Studies 46, no. 10 (2013): 1232.
[9] Ilan Moss, ‘Start-up Nation: An Innovation Story’, OECD Observer, Second Quarter 2011.
[10] Moss.
[11] Breznitz and Ornston, ‘The Revolutionary Power of Peripheral Agencies’.
[12] Anthony Welch and Jie Hao, ‘Global Argonauts: Returnees and Diaspora as Sources of Innovation in China and Israel’, Globalisation, Societies and Education 14, no. 2 (2 April 2016): 272–97, https://doi.org/10.1080/14767724.2015.1026249.
[13] Breznitz and Ornston, ‘The Revolutionary Power of Peripheral Agencies’, 1232.
[14] It is also worthy of note that as the assistance has become targeted on social outcomes, like the 2011 “program dedicated to the support of technological innovation that would aid disabled individuals to achieve functionality in their daily activities” that industry applications for funding have been increasingly limited. See Amos Zehavi and Dan Breznitz, ‘Distribution Sensitive Innovation Policies: Conceptualization and Empirical Examples’, Research Policy 46, no. 1 (February 2017): 332, https://doi.org/10.1016/j.respol.2016.11.007. 3.4. DSIP for the disabled for more detail.
[15] Alain de Serres, Naomitsu Yashiro, and Hervé Boulhol, ‘An International Perspective on the New Zealand Productivity Paradox’.
[16] “UN Environment has developed a working definition of a green economy as one that results in improved human well-being and social equity, while significantly reducing environmental risks and ecological scarcities.” See: http://web.unep.org/greeneconomy/what-inclusive-green-economy
[17] In this research “the “White economy” refers to those products, services, and activities related to health care and care including dependent, disabled and the elderly.” See OECD, ‘Fostering Resilient Economies: Demographic Transition in Local Labour Markets’ (OECD, 2014), 166, http://www.oecd.org/cfe/leed/Fostering- Resilient-Economies_final_opt.pdf.
[18] “In this research, silver industry (or silver economy) is defined as the industry/sector focusing on producing/providing the aged population oriented products/ services.” See OECD, 166.
[19] Cristina Martinez-Fernandez et al., ‘Shrinking Cities in Australia, Japan, Europe and the USA: From a Global Process to Local Policy Responses’, Progress in Planning 105 (April 2016): 1–48, https://doi.org/10.1016/j.progress.2014.10.001.
[20] Thomas Feldhoff, ‘Shrinking Communities in Japan: Community Ownership of Assets as a Development Potential for Rural Japan?’, Urban Design International 18, no. 1 (2013): 99–109.
[21] Martinez-Fernandez et al., ‘Shrinking Cities in Australia, Japan, Europe and the USA’.
[22] P. Seaton, ‘Depopulation and Financial Collapse in Yubari: Market Forces, Administrative Folly, or a Warning to Others?’, Social Science Japan Journal 13, no. 2 (1 December 2010): 227–40, https://doi.org/10.1093/ssjj/jyp045.
[23] http://www.oecd-ilibrary.org/economics/oecd-economic-surveys-japan-2017/the-decline-in-yubari-s-population-is-projected-to-continue_eco_surveys-jpn- 2017-graph80-en
[24] Deborah Needleman, ‘Who Will Save These Dying Italian Towns? Near-Empty Villages Try to Hold on to an Endangered Way of Life — and Some of the Country’s Most Important Artisanal Traditions.’, New York Times, 7 September 2017, https://www.nytimes.com/2017/09/07/t-magazine/abandoned-italian-towns.html.
[25] Caru Bowns, ‘Shrinkage Happens … in Small Towns Too!: Responding to de-Population and Loss of Place in Susquehanna River Towns’, Urban Design International; Basingstoke 18, no. 1 (Spring 2013): 61–77, http://dx.doi.org.ezproxy.auckland.ac.nz/10.1057/udi.2012.27; University of North Carolina, ‘Small Towns, Big Ideas: Branson, Missouri’, accessed 10 October 2017, http://www.iog.unc.edu/programs/cednc/stbi/cases/branson.php.
[26] Sam Strong, ‘Future of Earthquake, Flood-Prone Town of Franz Josef up in Air’, Stuff News, 28 September 2017, https://www.stuff.co.nz/the-press/news/west- coast/97304541/future-of-earthquake-floodprone-town-of-franz-josef-up-in-air.
[27] OECD, ed., Linking Renewable Energy to Rural Development, OECD Green Growth Studies (Paris: OECD publications, 2012), 52.
[28] OECD, Innovation and Modernising the Rural Economy, OECD Rural Policy Reviews (OECD Publishing, 2014), 58, https://doi.org/10.1787/9789264205390-en.
[29] OECD, 58.
[30] Mazurkewich, 2010 cited in Rachael Christina McMillan, ‘Anticipating Subnational Depopulation: Policy Responses and Strategic Interventions to Regional Decline’ (University of Waikato, 2015), http://researchcommons.waikato.ac.nz/bitstream/handle/10289/9873/thesis.pdf?sequence=3&isAllowed=y.\\uc0\\u8216{} Anticipating Subnational Depopulation: Policy Responses and Strategic Interventions to Regional Decline\\uc0\\u8217{} (University of Waikato, 2015
[31] Global Environmental Centre, 2005 cited in Rachael Christina McMillan.
[32] OECD, ‘Innovation-Driven Growth in Regions: The Role of Smart Specialisation’ (OECD, 2013), https://www.oecd.org/innovation/inno/smart-specialisation.pdf.
[33] As Foray,1429, outlines “Horizontal policies are good policies! First, they are likely to improve important components of the regional system of innovation. Second, they minimize risks inherent in any policy which selects projects according to preferred fields (Trajtenberg, 2012). And, indeed, this sort of policy has the potential to stimulate structural changes through various mechanisms such as diversification in firms, spin-offs and start-ups, mobility of people and networking (Boschma & Frenken, 2011).”
[34] Philip McCann and Raquel Ortega-Argilés, ‘Smart Specialisation, Entrepreneurship and SMEs: Issues and Challenges for a Results-Oriented EU Regional Policy’, Small Business Economics 46, no. 4 (April 2016): 537–52, https://doi.org/10.1007/s11187-016-9707-z.
[35] Dominique Foray, ‘On the Policy Space of Smart Specialization Strategies’, European Planning Studies 24, no. 8 (2 August 2016): 1428–37, https://doi.org/10.1080/ 09654313.2016.1176126.
[36] Foray, 1434.
[37] OECD, ‘Innovation-Driven Growth in Regions: The Role of Smart Specialisation’.
[38] OECD, 16.
[39] OECD, 13.
[40] McCann and Ortega-Argilés, ‘Smart Specialisation, Entrepreneurship and SMEs’, 549.
[41] Foray (2012) cited in McCann and Ortega-Argilés, 538.
[42] Foray, ‘On the Policy Space of Smart Specialization Strategies’, 1434.
[43] Ron Boschma et al., ‘Towards a Theory of Regional Diversification: Combining Insights from Evolutionary Economic Geography and Transition Studies’, Regional Studies 51, no. 1 (2 January 2017): 37, https://doi.org/10.1080/00343404.2016.1258460.
[44] Feldhoff, ‘Shrinking Communities in Japan’.
[45] Julian Wood, ‘Growing beyond Growth: Rethinking the Goals of Regional Development in New Zealand’ (Maxim Institute, February 2017), 7, https://www.maxim. org.nz/growing-beyond-growth/.
[46] Keith McLeod, Richard Fabling, and David C. Maré, ‘Hiring New Ideas: International Migration and Firm Innovation in New Zealand’, 2014, 29. Migration policy options will be covered in more detail in section 4.1.3 smart growth 3: labour supply related policy.
[47] Productivity Commission, ‘Productivity Commission Briefing to the Incoming Minister 2017’, 2017, http://uat-productivity.samdog.co.nz/sites/default/files/BIM%20 2017.pdf.
[48] Productivity Commission.
[49] Ben Westmore, ‘Policy Incentives for Private Innovation and Maxinisibg the Returns’.
[50] Paul Conway, ‘Achieving New Zealand’s Productivity Potential’, Research paper (New Zealand Productivity Commission, January 2016)
[51] Richard Harris, ‘Absorptive Capacity in New Zealand Firms: Measurement and (Policy) Importance’ (Presentation on Absorptive Capacity in New Zeland Firms, New Zealand Productivity Commission, 14 November 2017). Presentation at New Zealand Productivity Commission. Harris here defines absorptive capacity by saying it is “Similar to the ability of an individual to learn, absorptive capacity is about the ability of firms to use knowledge from the external environment to improve their productivity. If firms are not able to learn, then new strategies or technology designed to help firms become more productive are likely to have only limited impact.”
[52] McLeod, Fabling, and Maré, ‘Hiring New Ideas’.
[53] McLeod, Fabling, and Maré, 29.
[54] McLeod, Fabling, and Maré, 29. In terms of diffusion, firms with a higher share of returning New Zealanders in addition to introducing new goods and services and new marketing methods were more likely to report “introducing new organisational and managerial practices.” Firms that hired more recent migrants in addition to introducing “new goods and services, new marketing methods and being more likely to enter new product markets “are more likely to introduce new processes.”
[55] Paul Conway, ‘Achieving New Zealand’s Productivity Potential’, 48.
[56] Richard Harris, ‘Absorptive Capacity in New Zealand Firms: Measurement and (Policy) Importance’. Presentation at the New Zealand Productivity Commission.

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