Time to revise the TWI to reflect modern New Zealand’s export profile

Corporation growth Labour market New Zealand China

Headline exchange rate measures don’t capture New Zealand's burgeoning emerging market trade, particularly the China-driven export boom, argues this short paper.


People are worried about the damage the strengthening exchange rate might be doing to the export sector. It's only a matter of time before there are more ill-advised calls for exchange rate interventions.

Most economists use the Reserve Bank of New Zealand’s Trade-Weighted Index (TWI-5) exchange rate measure to understand the impact of the exchange rate on the economy since it is widely reported.1 But this measure reflects old trading patterns, as it puts a lot of weight on the exchange rate with 5 markets – Australia, Japan, the Euro area, the UK and the US – selected because of their historical market size. Nor does the TWI-5 capture services trade.

However, it is now the emerging markets – particularly China – that drive our export growth. Goods exports to China are booming, clocking in at almost $10 billion in 2013. Services exports are also growing in importance. China’s blossoming middle classes are on the move, generating a $732 million windfall for New Zealand tourism operators in 2013.

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