New Zealand's Market Economy

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New Zealand operates its country by using a market economy. International trade is a huge factor in a market economy. New Zealand trades heavily with Australia, China, Japan, and the United States of America. “The New Zealand economy depends largely on its modernized agricultural sector. Although it contributes less than 10 percent of the gross domestic product (GDP), it occupies roughly 1 percent of the labor force, making it a highly efficient industry” (Stetter). “Leading agricultural exports include meat, dairy products, forest products, fruit and vegetables, fish, and wool. The country has substantial hydroelectric power and sizable reserves of natural gas. Some of their leading manufacturing sectors are food processing, metal fabrication, and wood and paper products (Economy of New Zealand).” New Zealand has an interesting economic history; it has been full of ups and downs since the 1980’s. Beginning as early 90s this country has experienced an increase in growth. This particular growth was sparked by private sector investment instead of increased fiscal spending (Conway 6). There was a brief decline in the latter part of the 1990s due to the Asian financial crisis but New Zealand proved their resilience and bounced back as the economy picked back up (Conway 6). A couple factors that contribute to this consistent growth and resilience in the economy are capital investments and productivity, they go hand in hand and both play a key role in sustaining an economy. Capital investments are intended to improve the capability of the economy to expand productivity. A risk to this is the more resources a country allocates to investment marks a decline in the output of consumer goods. However, if the investment is effective and prosperous it will lead to a rise in the output of goods. New Zealand’s economy contains strengths, weaknesses, threats as well as opportunities. Some strengths include trade deficits, their niche in agriculture, and a stable political system. “September 2012 there was a trade deficit equivalent to 791 Million NZD” (New Zealand Balance of Trade). Trade deficit sounds terrible but it can actually be a good thing for the country. The current account deficit is offset by a capital account surplus. It is simply New Zealand borrowing from foreign countries so they can buy more from foreign countries than those countries buy from New Zealand. If the trade deficit promotes borrowing to finance long-term investment or increases income, and investment it is good. They are also a strong contender in agriculture. “The agricultural, horticultural, forestry, mining, energy and fishing industries account for more than half of New Zealand's total export earnings” (Stetter). New Zealand has a stable democratic political system which is excellent for trade. They are a liberal country and are an open economy with practical policies. On the other hand every country that has strengths also has weaknesses. Although they have major production in agriculture New Zealand lacks in manufacturing. This industry is evolving but the manufacturing sector could be better than what it currently is. Another major weakness for New Zealand is the foreign ownership of banks and most industries. “Foreign ownership of New Zealand banks steadily increased from the 1980s because, with deregulation, many of the locally-owned institutions sought overseas owners to be more competitive” (Tripe 6). The negative to foreign owned banks is that they have the power to decrease domestic banks profitability; they are a cost-benefit trade-off. The country also has a relatively small open economy which makes it vulnerable to unexpected changes, and it does not have much effect on the world economy as a whole. With New Zealand having a small economy they face many potential threats to their economy. Since they are so dependent on agriculture exports any change in climate could do serious damage. Such as droughts in the eastern portion or flooding...
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