Classifying New Zealand’s export markets : a behavioural approach

Abstract

Over the past twenty years the structure of New Zealand's export trade has changed dramatically. Traditional markets, especially the UK, have declined in importance while other markets in Asia and the Middle East have become more prominent. While exports are still dominated by agricultural products the focus of exporting activities is shifting from production to more market oriented approaches. Within New Zealand the regulatory environment has changed significantly. Tariffs and quotas have been removed or reduced substantially, while subsidies and export incentives have been all but abolished. This paper is a part of a study which aims to examine how the structure of New Zealand's export markets has changed with the deregulation of the New Zealand economy. A structural model of New Zealand's export markets is to be constructed to assist with this analysis. In order to simplify the estimation of the model the number of countries and commodities being examined must be reduced to a manageable level in a systematic fashion. This paper describes the method used to classify countries into markets by answering three questions (Hair, 1987, pg 197). 1. How should inter country similarity be measured? 2. What procedure should be used to place countries into groups? 3. How many groups should be formed? These questions are discussed in Sections 2, 3, and 4. Behavioural segmentation was used to classify countries into markets, using cluster analysis. The resulting market segments are then described and their implications discussed.