Distributional aspects of New Zealand’s tradable and non-tradable sectors

International trade Economic indicators New Zealand

With growing international concern about inequality, there is increased interest in how the benefits of trade growth are distributed across society. While economists have long understood the benefits of free trade in terms of improved living standards, they have sometimes lacked the ability to convince all parts of society about its merits.

This report looks to inform this debate.

Overall, New Zealand’s tradable sector accounts for 47 percent of New Zealand’s GDP, while employing only 42 percent of New Zealand’s workers (Figure 1).

In other words, New Zealand’s tradable sector is more labour-productive than the nontradable sector.

The tradable sector’s share of GDP has fallen from 53 percent in 2000 to 47 percent in 2017 (Figure 1). This decrease is because the New Zealand economy has grown faster than exports (5.3 percent compared 4.1 percent per annum since 2000).

The tradable sector is a collection of industries in the New Zealand economy with most exposure to international markets.

In this report, we defined an industry as tradable if it exports over 20 percent its output or 20 percent of its inputs are imports. These are the same criteria as used in Bailey and Ford (2017). We use a more disaggregated industry classification than Bailey and Ford (2017).

Another area of difference is that we update the 2017 Input-Output table with national accounts data. We also do not consider output exported from non-tradable industries as tradable output, and we consider import thresholds for the industry doing the importing, rather than the industry competing with these imports.

The non-tradable sector has grown faster than the tradable sector; and some tradable industries no longer meet the thresholds to be in the tradable sector

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