Brief Thoughts on Growing Apart: Regional Prosperity in New Zealand by Shamubeel Eaqub

NZIER economist Shamubeel Eaqub has published a short book that looks at the growing divide between the “big cities” of New Zealand and the regions. It’s called “Growing Apart: Regional Prosperity in New Zealand” and is published by Bridget Williams Books.

Comparing incomes in different suburbs or regions around New Zealand with countries and GDP per capita was an interesting approach to take. That Wellington is comparable to Finland or Gisborne comparable to Greece is an interesting analogy.

The fact that the recession job losses were widespread across New Zealand but the recovery has been concentrated in a small number of places gives some ammunition to the idea that increasing returns to scale or urban agglomeration is a story we can tell about the rise of cities.

A  consequence of this dispersion of the fruits of recovery is that for many highly skilled workers in growth industries in Auckland, Wellington and Christchurch – there was no recession at all and many people in fact received continual pay increases and bonuses throughout 2008 – today.

Auckland benefits twice over by having more of its economy in industries that are growing and by having strong performance in those industries.

Regional industry mix and performance help explain why Gisborne and Northland are poorly performing relative to Taranaki or Southland. But are there other factors at play here not explored in the book?

I’m not convinced that there will be a negative demand spiral for regional airfares. Firms care a lot less about $300 flights to Southland than leisure travellers. In fact, Air New Zealand regional airfares are pretty reasonable when you think about the fixed costs involved in putting on a service to cities that in almost any other country in the world would not even enter into a discussion of the merits of air connection to major centres!

The fact people pay those fares means there’s enough value in those regions for people to maintain networks. I’d suggest that even in an area like Gisborne, there is immense wealth and profit accruing to a non-trivial number of firms. I think of the number of people from the East Coast who board outside of the East Coast but end up back there, they weren’t school leavers *in* the East Coast but manage value chains *in* the East Coast. It’s a very complicated story to work through because of the opaque nature of private capital (farms, family businesses etcetera) and how it works in New Zealand.

These are very brief thoughts on an excellent short introduction to the regional economies of New Zealand. At some point, if you think of regions as firms, some will reach a “shutdown point” where spending millions of dollars a year simply maintaining infrastructure will not be worth it any more. Zombie towns are real, but I’m not convinced more immigration is a panacea as some on the left have suggested as a way to revive the regions. You can’t force immigrants to go to areas where there are few highly skilled jobs on offer!

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