Foundations for growth

New Zealand has a productivity problem. We produce less per hour worked than other advanced economies, and our productivity growth has been slower for over decades. This has real consequences. Slow productivity growth means slower wage growth, lower government tax revenue, harder trade-offs on climate change, and higher outward migration flows.

Infrastructure investment is often promoted as a solution. Historic projects like the Clyde Dam and modern infrastructure programmes have been justified on the promise of higher economic growth. But the relationship isn't straightforward. New Zealand already spends a higher share of GDP on public infrastructure than most OECD countries, yet our productivity challenge persists. This research provides a framework for understanding how infrastructure affects economic productivity, based on both theory and evidence.

Key findings

• Productivity is primarily driven by new ideas, technologies and innovations. Infrastructure primarily plays an indirect enabling role impacting productivity through a number of channels. Understanding these channels is essential for making smart investment decisions.
• International evidence on the relationship between infrastructure investment and productivity is mixed. The strength of the relationship depends heavily on what infrastructure is built, where it's built, and how well it's used.
• More infrastructure investment isn't always better. What matters is whether new infrastructure addresses genuine constraints on productivity and whether existing infrastructure is being used efficiently.
• Our analysis finds that while we spend a relatively high share of GDP on our extensive road network, the benefits we achieve from it are largely middle of the pack relative to other countries, suggesting we could realise greater economic benefit if we used existing infrastructure more efficiently.