Bridging the gap a long, slow process - report

New Zealand is likely to close the productivity gap with Australia by making its current economic structure work better, according to research by the New Zealand Institute of Economic Research.

The analysis of New Zealand's economic history finds that structural change takes a long time to work through the economy, and that the economy is likely to remain dependent on natural resources and agricultural knowledge.

The report says the value-added content of New Zealand's exports has been declining over the past 35 years.

"There is not a known intervention that can, with a reasonable likelihood, turn us into the economic equivalent of a Singapore, a Finland or and Ireland.

"The best approach is to ensure that our policy settings create an environment in which firms can thrive best."

The report says the reforms of the 1980s and 1990s removed many of the structural barriers to the efficient allocation of resources across the economy but the country's growth rate has been disappointing.

As the economy emerges from a deep and long recession the debate must shift to how New Zealand can lift its productivity growth rate.

The report finds that the primary sector went from 26 per cent of the economy in 1953 to 7 per cent in 2006, but that this is still twice as large as in most developed countries.

The non-food manufacturing sector went from 19 per cent of gross domestic product in 1953 to 11 per cent in 2006, largely as the result of trade liberalisation after 1984.

The food manufacturing sector is now larger than the farm sector.

The services sector has expanded from 52 per cent of the economy in 1953 to 77 per cent in 2006.

- NZPA