New Zealand, Economy
payments deficit, agricultural subsidies, meat exports, footwear manufacturers, British market
The economy of New Zealand has relied on overseas trade and capital since the 19th century, when Europeans colonized the islands. Most of the countryís infrastructure was initially developed by the state using imported capital. Imported goods and capital were paid for with exports of frozen meat and butter, which from the 1880s were the mainstay of overseas earnings for nearly a century. Terms of trade (the relative prices of exports and imports) were strongly in New Zealandís favor until the early 1970s. At that time, increases in world prices for oil (which New Zealand imports), reduced world demand for New Zealandís traditional primary goods, and decreased access to the British market with the development of the European Community (now European Union) contributed to a balance-of-payments deficit. The deficit persisted, making it difficult for New Zealand to regain the prosperity of earlier years. The economic problems were largely attributed to the economyís slow adjustment to external market changes. The economyís dependence on the export of a limited range of goods meant that any fluctuation in world prices and demand for those goods had a considerable effect. In addition, the economy was strongly regulated by the government.
In the mid-1980s the government initiated a program of economic restructuring along free-market lines. The reforms were designed to promote economic flexibility and competitiveness while decreasing the governmentís role in the economy. A program to deregulate the economy involved the removal of many legal and governmental restrictions that were regarded as hindrances to free competition, including agricultural subsidies, tariffs and import duties, and fiscal controls. The government withdrew from the manipulation of currency and financial markets and reduced its financial burden for social-welfare provisions. Privatization was vigorously pursued, and many state assets were transferred to the private sector. The economic restructuring ultimately transformed a highly regulated welfare state into a free-market economy.
The transition was not entirely successful in terms of economic performance, however, as New Zealandís economy fell short of growth expectations. One reason for this was the increased export of profits, especially in growth sectors such as banking and telecommunications. In addition, some economic sectors could not compete with the lower wage levels and higher industry protections in some other countries. The automobile industry was completely eliminated, while many clothing and footwear manufacturers moved their operations to countries with cheaper labor. The reforms also exacted a social cost, leading to high rates of unemployment (virtually nonexistent from the 1940s until the mid-1970s) and increased income inequalities.
The countryís national income, or gross domestic product (GDP), was $49.9 billion in 2000 (in U.S. dollars). Some 67 percent of the GDP derives from services, 26 percent from industry, and 7 percent from agriculture, forestry, and fishing. However, the relatively small GDP figure for agriculture, forestry, and fishing underestimates its importance for New Zealandís exports. Half of the countryís export earnings come from these products. In recent years New Zealand has developed its agriculture and manufacturing industries to suit the needs of niche markets. Dairy and meat exports continue to make a large contribution to New Zealandís economy. However, industries such as forestry, horticulture, fishing, manufacturing, and tourism have become increasingly significant.
>> Agriculture, Forestry, and Fishing
>> Mining and Manufacturing
>> Transportation and Communications
>> Foreign Trade
>> Currency and Banking
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