Removing barriers boost to GDP: study

Reducing trade, investment and competition barriers to "best practice" levels could significantly raise GDP per head in the European Union (EU) and the United States, but the impact on New Zealand would be small because of its already strong trade ties with Asia, an OECD working paper says.

The paper estimates that reducing such barriers could increase Gross Domestic Product (GDP) per head over the medium term by 2 to 3.5 per cent in the EU, 1.75 to 3 per cent in the OECD area as a whole, 1 to 3 per cent in the United States and by half to 1.5 per cent in the OECD area outside the US and the EU.

The paper argued that reforming regulations restraining competition, especially in services, would contribute more to raising GDP in the US and the EU than reducing barriers to trade and foreign direct investment.

Reform packages in the United States and the EU would benefit the rest of the OECD area and in the non-OECD area, the report said.

Exports in Canada and Mexico and neighbouring European countries could swell by some 20-25 per cent as the United States and the European Union increased in size, and as remaining barriers to trade with them were reduced.

Gains in other OECD countries would be less impressive but still substantial. In Japan and Korea, the export gains would average around 18 per cent, the report said.

"At the lower end of the spectrum, export levels in Australia and New Zealand, where Asian markets are relatively more important, increase by around 10 per cent. These gains may well be understated, however, given the likely positive spill-over effects of the EU and US policy shifts onto the Asian region and the rest of the world more generally.

"The impact on GDP levels in New Zealand and Australia are smallest at around 1 per cent of current GDP."