Economic reform and productivity growth: the case of Australia and New Zealand

The purpose of this paper is to study relative developments in total factor productivity (TFP) growth between the Australian and New Zealand traded goods sectors during the 1975–1998 period. Particular attention is paid to the effect of the mid-1980s economic reforms on overall productivity and efficiency change (ECH). We use an approach that decomposes TFP growth into an ECH and a technical change component. This decomposition provides extra insight on assessing relative productivity developments. Our results indicate that the New Zealand primary sector exhibits a remarkable improvement in TFP growth during the post-reform period. This improvement in productivity is driven predominantly by efficiency rather than technical change. There are no significant productivity changes in the Australian primary sector, nor the manufacturing sectors of the two countries as a result of the reforms. In fact, the productivity gains in the New Zealand manufacturing recorded in the initial stage of the post-reform period appear to have been eroded in the 1990s. © 2002 IMACS. Published by Elsevier Science B.V. All rights reserved.