Geography matters for small advanced economies: Implications for economic strategy

Abstract

New Zealand is a small advanced economy in the South Pacific Ocean. Policy advisors often compare New Zealand’s economic performance with those of other successful small advanced economies. These comparisons generally recognise that New Zealand is uniquely distant from the world’s largest and highest-income markets. Nevertheless, it has become commonplace for policy advisors to say “Geography is not destiny: New Zealand can do better”. This paper draws on standard regional economic development analysis to conclude that geography matters for economic strategies. It draws on endogenous growth theory to explain how the properties of knowledge mean that knowledge can sustain increasing returns to scale and hence productivity growth. The paper draws on that theory to introduce a mission-oriented innovation research programme that has contributed to creating and capturing greater value from New Zealand food and fibre exports.