Is globalization bypassing New Zealand?

Bryce Wilkinson and Khyaati Acharya write:

A report in 2012 by The New Zealand Initiative drew attention to New Zealand’s seventh position among 57 countries for having the most restrictive FDI regulatory regime. This was largely due to New Zealand’s economy-wide screening regime and the broad definition of ‘sensitive’ land. Treasury has confirmed that there is credible anecdotal evidence that New Zealand’s regime is having a chilling effect on inwards FDI investment, but the materiality of this effect is an open question. It is doubtful that the damaging Crafar farms case would have triggered regulatory barriers in other Anglo-Saxon jurisdictions or comparable Asian countries.

New Zealand’s Overseas Investment Act further detracts from the country’s ‘open for business’ image by starkly asserting that it is a privilege for foreigners to be allowed to own or control sensitive New Zealand assets. This is in stark contrast to the explicitly welcoming approach widely taken elsewhere.

Statistics show that New Zealand has largely missed out on the expansion of global FDI since the mid-1990s. Both inwards and outwards stocks of FDI peaked as a percentage of GDP more than a decade ago in New Zealand, while world stocks continued their upwards climb. Between 2000 and 2011, New Zealand’s rank on UNCTAD’s FDI attraction index slumped from 73rd in the world to 146th. Hong Kong and Singapore have been in the top five throughout this period.

The longer study (pdf) covers many other points.  And here are further writings by Bryce Wilkinson on New Zealand.


why would capital have to go to new zealand, new zealanders seem quite high to go to capital. You get equalization of factor prices either way.

Speaking of remote island nations, how did go-go finance economics work out for Iceland?

I'm not sure if I understand the crux of your argument. Are you saying that capital is particularly prone to flight in remote islands? Why would geography have any significant impact on international financial flows? What if the island is nearby a major landmass like Hong Kong, or medium distance like Cuba? Do bankers systematically differ when evaluating investments in peninsulas or isthmuses?

And if physical geography doesn't have a significant impact on a basically electronic international financial system, then why Iceland just becomes one data point out of dozens that on balance strongly sing the praises of FDI.

SS is quite right: back in the 1990s New Zealand deliberately scaled back on FDI after they found out that monetary liberalization before trade and fiscal liberalization caused hot money inflow problems. This was reported by the Economist magazine back then, and I'm somewhat surprised TC does not mention it. I am not an economist and I know this. New Zealand is "famous" for understanding, well before the 1997 SE Asia crisis, that hot money causes problems.

Wait, they're not just narrow minded, protectionist sheep lovers?

Links, perhaps? I don't recall our fairly right-wing government of the time ever going soft on FDI. And intentions aside, the report shows that the actual drop-off in FDI was well after the Asian crisis.

@MD - this was well known in the early 1990s... let me see if Google goes back that far...hold please... could not find it. Aside from Adam Smith institute and Hoover Institute praises for NZ trade liberalization, I did find this 1994 article that suggests a weak linkage between domestic and FDI variables, see

Oh well, it may have been an editorial comment in the Economist that I read, perhaps speculating on the evidence, but I do recall the lesson was that hot money (fdi liberalization) was bad if a country has a fiscal deficit and does not really control their own currency if they are a small country.

'This is in stark contrast to the explicitly welcoming approach widely taken elsewhere.'

Tell that to CNOOC -

'China’s government-controlled CNOOC Ltd. withdrew its $18.4 billion bid for Unocal Corp. on Tuesday, ending a politically charged takeover battle that highlighted the United States’ growing apprehension about the economic rise of the world’s most populous country.

CNOOC’s retreat clears the way for Chevron Corp., the second-largest U.S. oil company, to complete its acquisition of Unocal next week, even though its cash-and-stock offer is currently worth $700 million less.

Chevron had several factors working in its favor — regulatory clearance, the support of Unocal’s board and the backing of U.S. lawmakers, who questioned whether economic and national security interests would be threatened if a company with significant ties to China’s Communist government were to buy a major U.S. oil company.'

But that was a few years ago, of course.

So how it is going more recently? - 'Unfortunately, these approvals come against a backdrop of difficulties. With increasing frequency, Chinese investments have run into U.S. national-security concerns from the Committee on Foreign Investment in the United States, or CFIUS, which has scuttled several acquisitions, including one late last year.

We’re in the midst of a CFIUS outbreak. Without continuing and visible approvals of Chinese investments, this may damage the health of U.S.-China relations, which are critical to a more stable and prosperous 21st century.


For example, in 2009 it prevented a Chinese company from buying a Nevada gold mine, on grounds that the site was too close to a U.S. defense facility. Since then, several other deals in various parts of the U.S. have foundered on such “proximity” concerns. Yet it is possible for anyone to come within the same proximity to a U.S. defense facility in ways that the committee can’t review, including leasing a building, visiting a property, and driving trucks on nearby public roads.'

Uhggg! Define "globalization"

Perhaps the Kiwis think there is more to life than FDI. See, for example, The Economist Intelligence Unit's Quality-of-Life Index (, as a way to think about the context.


Thank you for saying this. I can't stand the 'Cult of FDI', as I like to call it.

They're the same nincompoops who claimed that democracy in Russia would come shortly after the arrival of McDonalds and Levis blue jeans. They think that FDI is manna from heaven, and that the Second World ought to be on its knees begging New York and London for more and more of it.

I think typically the "second" world referred to the Communist countries. Wonder what a new name would be for that part of the First (developed) world that are not US, EU etc.

I think you're making a false dichotomy. The Economist index is looking at metrics like divorce rates, church attendance, political freedom and climate. Are you saying that liberalization of foreign investment rules would somehow dissolve marriages, stop people from going to church, cause the government to repress people and make the climate worse? Because that's a pretty crazy argument.

NZ's got good quality of life largely because of the people, culture and land. Increasing FDI wouldn't change any of those intrinsic factor, and it would put a little bit of extra money in everyone's pocket. Making the quality of life even higher for Kiwis.

I hear that the Chinese housing sector is doing very well (there's even a MR post right above here discussing it) Good thing everyone associated with it is going to be having a higher quality of life due to the FDI financing it, especially over the next 10 years. And nothing possibly bad can come of it either..after all, FDI is manna from heaven ("it would put a little bit of extra money in everyone’s pocket").

You don,t draw cards when your hand is unbeatable. Kiwis have it made and a lot of them know it. Who needs quantity when your quality is tops.

One can easily think that there's more to life than FDI, or even higher incomes, and also simultaneously think that you'd like a higher income, even at the expense of some other matters.

There's been a steady series of net emigration from NZ by NZ citizens for years now. See
(Note, net immigration is generally positive, but a lot of that is people leaving poor countries like China and India).

This makes me want to move to New Zealand.

Easy there, sport. Enough talk like that and people start realizing that quantity and quality aren't the same thing, and that the economists' models of growth, growth, growth are actually for a society living way beyond its means.

Just so long as you don't want to build or expand your business over there...

Either of you (the mover, or the person reluctant to expands their business) would be well
served by doing a lot more research, and even (though it seems to have an axe to grind)
reading even this report from cover to cover should change your views a lot.

"As a percentage of GDP, New Zealand’s stock of inwards FDI was much higher ...
than the world average in 2012." [Or than Australia, or than their chosen comparisons
to "no fuel, primary commodity exporters" {Chile, Argentina, and Peru}, and over
4x (!) greater than their "most attractive" FDI target - China]. And that's per GDP;
"New Zealand’s ability to attract FDI is stronger on a per capita basis."

The number one complaint in this paper is that FDI has grown globally a lot in the last 10-15 years,
and has stagnated in NZ. But stagnated at a high level, and NZ underwent a lot of the relevant reforms far
earlier (mid 80's) than many others, and still - on many fronts - is far more liberal than most. Maybe
it reached equilibrium sooner?

The number two complaint in this paper (and from others they cite) is that there is a national review policy
for FDI. The "national" bit is unnecessarily scary since in many other countries $4M is a small district.
As they point out clearly, they are reacting to the very existence of the policy itself, not the vanishingly rarely times it
actually blocks something. It scares people off or something. There's ample precedent as to what
would merit an objection in practice: hardly anything, though yes buying copious farmland can trigger
irrational (?) nationalist sentiments and has at least once become very political.

Against that, you are left with a floating exhange rate, competitive banking system,
no exchange controls, and (world bank says...) best investor protections in
the world, third in the world in ease of doing business, and best three or four (depends on who you talk to) in corruption.
And low practical resistance to foreign ownership: buy an airline, set up a bank, build a business, buy/build a utility, no one
is going to hold you to different laws or ask for bribes or need you to find a 51% NZ partner or the nonsense other
countries want. Want to bring employees in to work in NZ - fairly clear points-system based transparency as to whether this happens or not.

NZ is (in my opinion) if anything too open to FDI. But whatever you think, with such a small local market,
and such a huge distance to either visit or export from, the most aggressive policies in the world are not going
to earn the most investment. There are also NZ laws that may be said to discourage investment
(labor laws, environmental, etc) but they are uniformly applied (and anyway: economic growth is not an end
in itself) - but is it "anti globalization" to have policies that penalize new industry uniformly, or is that a different
economic question altogether?

It's super easy to build or expand YOUR business in NZ. Just google "ease of doing business index" or some variant thereof. The heritage foundation ranks NZ very high in terms of ease of doing business....

It's harder to come in and buy a certain type of pre-existing businesses in NZ: namely, farms.

I'm a NZ citizen living in the US. Is there anyway I can profit from my ability to own "sensitive" New Zealand assets due to my NZ citizenship?

Why are you living in the US instead of NZ? Genuinely curious.

Implied preferences? (The ultimate get-out-of-jail card for economists who don't actually know the answer to things).

I grew up here. My dad is a kiwi and I ratified my own NZ citizenship. I'm a lawyer so my skills aren't really portable. Also, all my friends and family live here.

Read the reply made by "alexh" above.

This post captured my interest because it seemed so contrary to image of NZ business. Turns out the paper is rather disappointing.

BTW: at the same time this paper is published, the NZ media is all in a frenzy about foreigners buying too many assets in the housing sector ... When it comes to globalization, you can't have it both ways.

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