GEN talk: Procter on economic development

04/05/2012 § 4 Comments

Yesterday afternoon, the Government Economics Network (GEN) had another in its series of lectures. Roger Procter, Chief Economist of the Ministry of Economic Development, gave this one. He presented from his continuing work on what leads to economic development generally and how to apply those lessons to New Zealand. The main reference is his MED occasional paper from last year, ‘Enhancing productivity’.

Building a consistent theoretical framework is difficult, so kudos to Roger for putting this together. He brings a lot of theoretical and empirical literature to bear on the problem of how to help New Zealand develop. He also explains why there is a role for government, such as overcoming market failures that arise from innovation and information spillovers.

I talked with him after the lecture (the GEN series is intended for networking, too — please join in if you are in town!). I’m not able to comment comprehensively on the whole framework — there’s a lot to it — but here are some thoughts:

  • I’m not sure what the right scale of analysis is. We can look at the macro policy frameworks, which tend to be pretty good in New Zealand. At the micro level, my research tends to find that what people and firms actually do isn’t as neat and tidy as we like to believe. And that means that policy may need to be more flexible/specialised/nuanced. Tyler Cowen’s comments (h/t Offsetting Behaviour) on the state of his industry are instructive (and not unusual):

what I see around me is a total, total mess.

  •  It’s really hard to see how to keep good intentions from becoming bad policy. Paul Walker over at Anti-Dismal often takes this on, for example on policy around exports. A good policy, as Roger shows, might help by increasing scale and agglomeration. In particular, increasing exports so that New Zealand firms can take advantage of economies of scale would improve economic efficiency. But, how do you keep that policy from becoming simply mercantilism — exporting for its own sake?
  • Two key parts of Roger’s suggestions are greater national savings and macro conditions supportive of exporters. We can turn those around. Greater savings is the same as less consumption, and conditions that support exporters harm importers. It’s important to consider both sides. This was the origin of my post and subsequent discussion in comments with Roger earlier on the Briefing to the Incoming Minister. In a nutshell, the plan is to consume less and have more left over for production and investment.

Judging from the seminar, Roger’s report is worth a read. It will provide good material for thought and discussion, whether you agree with it or not.


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§ 4 Responses to GEN talk: Procter on economic development

  • Seamus Hogan says:

    Bill. Good points, but I have to take issue with “conditions that support exporters harm importers”. Any policy that increases the present value of exports will also increase the present value of imports. What is harmed by encouraging exports is import substitution.

    It is true in the short-run, that a policy to enhance exports by reducing consumption will typically increase exports and reduce imports in the short-run (the necessary increase in the current account to exactly offset the reduction in the capital account), but is simply a shift through time of imports.

    • Bill says:

      Hi Seamus – The problem is how to measure PV. We’d have to reduce the ‘price’ of our exports now to sell more, and pay a higher ‘price’ for our future imports, compared to free-trade equilibrium. In a constant-returns world, the net PV will be negative compared to the equilibrium. The policy might generate benefits if it’s an increasing-returns-to-scale world and the gain from scale is big enough to offset the costs.
      Otherwise, there’s free money out there.

      • Seamus Hogan says:


        I don’t think measuring PV is an issue: we discount the future by whatever the interest rate on international borrowing and lending is. It is just an accounting identity that the PV of future changes in exports equals the PV of future changes in imports. My point was simply that the in anything except the political short-term, the tradeoff a country faces is the extent to which it devotes its resources to production for home consumption versus production for exports to buy imports.

  • Paul Walker says:

    “He also explains why there is a role for government, such as overcoming market failures that arise from innovation and information spillovers.”

    Is it just me or do other worry when the Man from the Ministry tells us how important the Ministry is to fixing things that those useless old markets keep getting wrong. I would ask of the Man 1) what exactly are these failures 2) is the Ministry doing something really better than doing nothing? 3) how is it that the Ministry seems to know exactly what to do when the market participates don’t? (Hayek pointed out the centralising information) and 4) is what the Ministry would do really better that letting the people themselves sort the problem out? (I’m thinking Ostrom type analysis here or dealing with adverse selection problem in used car markets by creating a market in testing used cars)

What’s this?

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