New Zealand’s External Trade: The China Factor

Abstract

New Zealand (NZ) is a trade dependent nation with exports of goods and services accounting for about 30% of the GDP. Given the fact that NZ’s domestic market is small in size NZ has to export to overseas markets to achieve higher growth and higher living standards. NZ has been implementing free trade policies in order to enter new markets and thereby enhance its exports. NZ has negotiated several Free Trade Agreements (FTAs), e.g., the CER with Australia in 1983, the CEP with Singapore in 1985, and a FTA with China in 2008. The value of exports from NZ to China increased by more than 300% between 2008 and 2013 and China has become NZ’s top export destination replacing Australia. This paper investigates the effect of the FTA between NZ and China on the trade flows between the two countries vis a vis other major trading partners by computing Trade Intensity Indices. The results indicate that in general the value of the index with China has been rising particularly in the post FTA period while there has been decline with regard to other major trading partners such as Australia.