An investigation of productivity and technological advance in New Zealand agriculture

Abstract

One of the main distinguishing features of the New Zealand economy has been the heavy dependance on agriculture. This importance of the primary sector has undoubtedly been due to an abundance of cultivable land, a favourable climate, and an almost complete lack of mineral resources on which to base an industrial economy. Hence, economic growth in New Zealand has hinged on the export of agricultural products to earn foreign exchange with which materials and equipment for industry, and manufactured goods for consumption, can be imported. In view of this, a study of agricultural productivity and resource use is likely to be of interest, both from the historical point of view, and as an indicator of the potential sources of increased productivity in the future. The main aim of this study has been to estimate the extent to which increased productivity has contributed to the growth of factor output in agriculture, and to investigate in as much detail as the data would allow, the nature of this output 'residual' which is broadly labelled as the result of technological advance. At an early stage the difference between gross productivity (gross output per unit of aggregate input) and factor productivity (factor output per unit of factor input) was emphasised and illustrated. While measures of gross productivity provide a complete picture of all inputs and outputs in the agricultural sector, the investigation of factor productivity, in terms of the factors of production and the output accruing to these factors, is more consistent with measures of national productivity. The drawing of conclusions from the results derived in this study must be approached in a very cautious manner. There are many reasons why the accuracy of the estimates should be questioned, and even if the consequences of any model misspecification are ignored, the possible errors in the data are sufficient to have caused substantial bias in the estimated parameters. With these thoughts in mind the results of this investigation could be said to indicate three important features of growth in the agricultural sector. These are, that the elasticity of substitution between capital and labour appears to have been less than one, that increased productivity (or its major cause, technological advance) has played a significant role in the expansion of factor output, and finally that this technological advance has been biased towards saving relatively more labour than capital.