New Zealand Institute of Economic Research (Inc)
Media Release, Thursday, 2 July 2026
For immediate release
New Zealand’s weak productivity performance is often explained as the unavoidable consequence of being small, distant and remote. A new NZIER Public Good Programme report argues that the diagnosis is only partly right.
The report New Zealand’s productivity prognosis: Determinants, dynamics and diffusion finds that New Zealand faces real structural disadvantages, including geographic distance, limited scale and exposure to global supply-chain disruption. However, these factors alone do not explain why productivity growth continues to lag behind comparable advanced economies.
NZIER’s review of the evidence points to a more domestic problem: too little capital, technology and capability are flowing into the parts of the economy that generate long-term productivity growth.
“New Zealand cannot move itself closer to the rest of the world, but it can make better choices about where investment, skills and innovation are directed,” says Nam Bui, NZIER Economist. “The issue is not just whether New Zealand innovates. It is whether ideas, technology and better business practices spread widely enough through the economy to lift performance beyond the leading firms.”
The report finds that productivity growth has increasingly relied on incremental efficiency gains rather than on strong capital deepening or broad-based innovation. Investment remains heavily concentrated in housing and asset-backed sectors, while knowledge-intensive and high-growth firms continue to face financing barriers.
Business expenditure on R&D has increased, but New Zealand remains well below OECD levels, and many firms, particularly SMEs, face persistent barriers to digital adoption.
The report also highlights a major diffusion challenge. Leading firms adopt technology, management practices and digital systems faster than the wider business sector, leaving a long tail of lower-productivity firms. Skill mismatches, weak digital capability and uneven management quality limit the ability of firms to absorb new technologies and lift productivity.
The paper argues that New Zealand needs a productivity agenda focused less on a single silver-bullet reform and more on improving the way capital, skills, technology, and innovation move through the economy.
“This is a practical agenda,” says Nam Bui, NZIER Economist. “Many of the constraints holding back productivity are not fixed features of geography. They are shaped by investment incentives, regulatory settings, competition, workforce capability and firms’ ability to scale and adapt.”
The report concludes that lifting productivity will require better capital allocation, stronger business investment in R&D, ICT and digital capabilities, faster technology diffusion, improved skills matching, and policy settings that support firms in growing, competing and connecting internationally.
Each year NZIER devotes some of its resources to undertake and make freely available economic research and thinking aimed at promoting a better understanding of New Zealand’s important economic challenges. The preparation of this paper was funded by those resources.
For further information, please contact:
Nam Bui, Economist
nam.bui@nzier.org.nz, 027 287 4664