Productivity growth in New Zealand: economic reform and the convergence hypothesis

The recent productivity experience of the New Zealand economy is examined using a cyclically-adjusted or trend measure of total factor productivity (TFP). On the basis of this measure, the results of estimating a leader-follower convergence relationship suggest that productivity in New Zealand has been converging to US levels through a process of technological diffusion. The evidence also tentatively suggests that the size of the steady-state gap in the levels of TFP between New Zealand and the US decreased in the early 1990s. Although the evidence presented here is encouraging, it should be interpreted with considerable caution given that the post-reform sample period is very short and the method used to measure the steady-state levels gap is preliminary. JEL classification: 040