Story: Economy

Page 1. Distinctive features

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Standard of living

While New Zealand has about 0.1% of the world’s population, its economy produces about 0.3% of the world’s material output. Compared to the rest of the world, it is one of the richer economies. However, the Organisation for Economic Co-operation and Development (OECD) places it at the middle to lower end of its middle rich countries – a classification that focuses on material output rather than standard of living. New Zealand’s distinctive (and in some ways relaxed) lifestyle with a moderate climate, open environment, reasonable public services, and relative security from war and terrorism probably means its quality of life – if that could be measured – would rank higher. According to surveys, New Zealanders think so.

New Zealanders are generally well educated, healthy, and have a comfortable standard of living. The United Nations Human Development Index, which combines longevity and education with material production, places New Zealand in the top cluster of countries so well off that there are no clear differences shown.

A market economy

As in most rich OECD countries, New Zealand’s economy primarily uses the market, where private owners (of resources, factors of production, and goods and services) make economic choices voluntarily. The government provides a context, including a framework of commercial law, in which these transactions can take place, although it reserves some activities mainly to itself, including the issue of currency. In some sectors – most notably education and health – it is the most important funder and provider. Although the market mechanism has always been dominant since European settlement, the balance between government involvement and voluntary market transactions has varied. New Zealand’s post-war market liberalisation was relatively late, which in part explains the vigour of the reforms from the mid-1980s.

The service (i.e. tertiary) sector dominates production and employment, with the share of manufacturing (secondary) and resource (primary) industries diminishing. Most industries are technologically sophisticated, relying on – by world standards – a skilled workforce.

Unique features

Every economy is unique, but New Zealand’s has some distinctive elements:

  • It is the most distant from the world’s economic heartlands, with the exception of a few island micro-states, although improvements in transport and communications have reduced that handicap.
  • It is relatively small (27th of 30 countries in the OECD in 2004, measured by total gross domestic product (GDP) at common prices).
  • It lacks some of the prestige industries, such as jet aircraft construction.

The biggest difference is in the external sector. New Zealand’s export effort remains based on its comparative advantage in certain resources which are traded for other goods and services which it cannot produce as efficiently – for example, trading sheep meat for cars. This trade of like with unlike is called ‘inter-industry trade’. Elsewhere in the post-war era there has developed a new phenomenon, called ‘intra-industry trade’ in which countries export and import much the same product – for example, aircraft parts. This now makes up about a quarter of all international trade, and a far higher proportion of trade between rich nations. Among the OECD rich countries, New Zealand performs poorly on measures of intra-industry trade. In this respect it appears more like a developing than a developed country. It is only with Australia that New Zealand has a mature intra-industry trade relationship.

How to cite this page:

Brian Easton, 'Economy - Distinctive features', Te Ara - the Encyclopedia of New Zealand, (accessed 26 July 2017)

Story by Brian Easton, published 8 Feb 2005, updated 16 Sep 2016