Looking at the numbers A view of New Zealand’s economic history Phil Briggs 2003 UPDATED 2007 NZ INSTITUTE OF ECONOMIC RESEARCH (INC.) 8 Halswell St, Thorndon PO BOX 3479 WELLINGTON NEW ZEALAND Phone: +64 4 472 1880 Fax: +64 4 472 1211 Website: www.nzier.org.nz The institute, its contributors, employees and board shall not be liable for any loss or damage sustained by any person relying on this report, whatever the cause of such loss or damage. The author At the time of the first publication of this book Phil Briggs was a senior research economist at NZIER where he specialised in quantitative analysis and economic forecasting. © 2003 New Zealand Institute of Economic Research (Inc) Research monograph 69 ISSN 0113 1877 ISBN 0 908969 12 0 III Preface The New Zealand Institute of Economic Research (NZIER) was founded in 1958 as a non-profit making trust to provide economic research and consultancy services. The institute is probably best known for its long-established Quarterly Survey of Business Opinion and Quarterly Predictions. The institute also undertakes a wide range of consultancy activities for government and private organisations. This report has been prepared at NZIER by Phil Briggs. The assistance of Vhari McWha, Ralph Lattimore, Alex Sundakov, Doug Steel, John Yeabsley, Frances Gamble, Sarah Spring, Corina Basher, Cherloe Morgan, Daniel Briggs and Liz Hodgson is gratefully acknowledged. Thanks also to Grant Scobie and Katie Katyan at the Treasury for supplying a number of the long-term data series that they have collected. This report has been completed with a grant from NZIER’s public good research fund. The data used in this report, plus associated workings and charts, are available on www.nzier.org.nz. CONTENTS A view of New Zealand’s economic history ...........................i Introduction ...............................................................................1 Overview ....................................................................................4 c1000–1769: Arrival and development of the Māori ........................4 1769–1870: Colonisation and the ‘quarrying’ of resources..............5 1870–1914: Farming takes the lead ................................................5 1914–1934: War, struggle, and depression.....................................6 1934–1966: Partial industrialisation and the long expansion...........7 1966–present: Dropping off the OECD pace...................................7 Update 2003 to 2007.......................................................................9 Sources ...........................................................................................9 An exercise....................................................................................10 Population ...............................................................................13 Māori population............................................................................13 Growth in non-Māori and total population......................................19 Natural increase and migration......................................................24 The demographic transition...........................................................27 Distribution of population...............................................................30 GDP 34 The concept of GDP......................................................................34 Historical GDP estimates...............................................................35 Looking for patterns in historical GDP figures ...............................38 Real GDP per capita .....................................................................43 Business cycles.............................................................................48 An exercise....................................................................................52 Prices 53 James McIlraith .............................................................................53 McIlraith’s work..............................................................................53 The course of prices after 1910.....................................................63 External sector........................................................................68 Exports and imports, nominal........................................................68 V Exports by type of commodity....................................................... 71 Exports by trading partner ............................................................ 76 Trading partner growth ................................................................. 77 Export prices and volumes ........................................................... 81 Exchange rates............................................................................. 85 World prices.................................................................................. 89 Terms of trade .............................................................................. 91 Current account ............................................................................ 97 An exercise................................................................................. 100 Labour market .......................................................................101 Employment................................................................................ 101 Unemployment............................................................................ 103 Participation rates....................................................................... 106 Industry structure........................................................................ 108 Household Labour Force Survey ................................................ 111 Wages ........................................................................................ 117 An exercise................................................................................. 121 Government...........................................................................122 The scope of government activity ............................................... 122 Trade policy ................................................................................ 123 The rise (and slight fall) of government spending ....................... 126 Monetary policy........................................................................... 131 An exercise (in cynicism?) .......................................................... 136 Looking ahead.......................................................................137 The ageing of the population ...................................................... 137 New Zealand and the world ........................................................ 141 A final exercise ........................................................................... 146 Bibliography and further reading........................................146 Appendix: original outline of course ..................................152 Shocks and horrors..................................................................... 152 Index 154 VI FIGURES Figure 1 Conceptual model of Māori population 1000–1800..................13 Figure 2 Population 1800–1901.............................................................18 Figure 3 Population from 1840...............................................................20 Figure 4 Population growth from 1850...................................................22 Figure 5 Total population growth from 1875 ..........................................23 Figure 6 Components of population growth ...........................................24 Figure 7 Birth and death rates ...............................................................28 Figure 8 Life expectancy at birth............................................................30 Figure 9 North Island and South Island populations ..............................31 Figure 10 Population growth in major urban areas 1886–2001 ...............31 Figure 11 Urban and rural populations from 1881 ...................................33 Figure 12 Real GDP from 1860 ...............................................................39 Figure 13 Real GDP from 1860 on log scale ...........................................41 Figure 14 Real GDP per capita................................................................45 Figure 15 Real GDP per capita, New Zealand and OECD countries .......47 Figure 16 Growth in real GDP from 1870.................................................49 Figure 17 Real GDP, actual and potential................................................50 Figure 18 Real GDP, difference between actual and potential ................52 Figure 19 Press report: McIlraith’s article on prices in 1912 ....................55 Figure 20 Press report: McIlraith’s lecture on the rise and fall of prices55 Figure 21 New Zealand and English prices 1861–1910...........................58 Figure 22 New Zealand farm and non-farm prices 1861–1910................61 Figure 23 Export prices 1853–1914.........................................................63 Figure 24 New Zealand prices from 1861................................................64 Figure 25 Annual inflation rate from 1862................................................66 Figure 26 Exports and imports, nominal, to 1940 ....................................69 Figure 27 Exports and imports, nominal, from 1940 ................................70 Figure 28 Exports and imports, percent of GDP ......................................70 Figure 29 Goods exports by type of commodity.......................................72 Figure 30 Services’