Further evidence on the consequences of foreign direct investment for the New Zealand economy

Abstract

After 1984 the New Zealand economy underwent a radical transformation, moving from, arguably, the most regulated economy in the western world to the world’s freest market economy (Passow, 1992). One aspect of this economic deregulation involved major changes in the area of foreign investment - restrictions in areas such as exchange control, overseas borrowing and access to capital markets were gradually removed. These new, liberal policies and an extensive privatisation program opened up a number of opportunities to overseas investors (OECD, 1993). Subsequently, in the early 1990s, the government declared a further relaxation of policies and introduced an investment promotion program. The political and economic impact of foreign investment in New Zealand has been the subject of intense public debate. Recently Dr Don Brash, Governor of the Reserve Bank of New Zealand, has made arguments in favour of foreign investment, concluding that ‘Almost all foreign investment will be of benefit to New Zealand and New Zealanders’ (Brash, 1995, p.254). Dr Brash asserts that foreign investment provides capital, technology, market knowledge, and market contacts. On the other hand, concerns are raised that foreign investment threatens New Zealand’s sovereignty and results in the exploitation of our markets and resources.