Productivity growth is a complicated process.
Differences in the accumulation of the factors of production (capital and labor) in different developed countries cannot explain the differences in output per person growth rates. We have no evidence to the contrary. The same is true for intangible capital such as human capital or other forms of capital.
So if economists are unsure about the explanation how would politicians make policy about “closing the productivity gap”?
Generally speaking, nations are rich and prosperous –countries endowed with natural resources notwithstanding – if people produce more goods per hour-worked.
Producing the goods is only half the problem though. People have to sell the goods. New Zealand is not a big domestic market so we have to export our products to other markets.
To compete with other countries in the global market we not only have to sell more goods, we have to sell new variety and quality goods.
We don't know how to measure improvement in quality very well. With respect to variety, however (a very few exceptions notwithstanding) we have not really produced a lot. We produce and export unskilled-intensive commodity-dominated goods. Milk remains milk, timber is timber and lamb is lamb, and neither is Samsung or an IPhone…or seedless melon etc. you get the point.
In addition to the quality and variety of new goods, growth also requires cost reduction. All modern growth models, which can generate growth require increasing returns to scale in the factors of production and technological progress.
Production of new, quality and variety goods at lower cost is simply what Total Factor Productivity (TFP) is all about. It is the key to explaining income per person and we do not really know a lot about TFP, do we? The neoclassical growth model says nothing (The Solow residuals).
The strongest available evidence is for investments in R&D as the driver of endogenous growth. TFP growth requires a big monopolistic R&D sector. We don’t have such sector. The New Zealand economy is made of small firms.
One would think that in the absence of an R&D market the government could play a role. In my research with the late Robin Johnson and Steve Stillman we studied R&D stock in New Zealand over a period of 40 years and found no evidence of positive spillover from public R&D investments. Successive governments over four decades produced no effect. Why should we believe that the government could do anything differently?
Sixty years ago, the late Nobel Laureate Simone Kuznets argued that, under the assumption of increasing returns to scale, per capita output growth is tied to population growth in the long run. He cited different effects arising from natural population growth, immigration, and decreasing death rates. His idea, although mathematically valid and easy to prove, was controversial then, but it is less so today because we have endogenous growth models with scale, and increasing return to scale production function, which have good empirical validity.
Kuznets calls one of the connections between population growth and productivity growth: useable knowledge. To produce these new goods (e.g., the IPhone), a country needs to exploit and use the knowledge created in the advanced world.
This knowledge, “the effective advanced-world research efforts,” measures the time and efforts scientists, inventors, innovators in these countries etc. put into producing it.
The larger the population (in advanced and developed countries) that higher is the probability that more people will be working in the production of knowledge.
So TFP growth in New Zealand or any other developed country is a function of the growth rate of effective world research efforts, which essentially explains output per capita growth.
In the long-run, output per capita growth in any developed country is a function of the population growth in the advanced world. Generally speaking, immigration is just one way to increase population, the labor force and the probability of more R&D.
That said, the advanced countries today have declining working age populations, stagnant or declining fertility rates, declining youth population, and more aging population. These trends seem to be associated with long-run declining productivity growth, which we observe in the data currently.
Along the transitional path between now and the long run, productivity growth in the developed countries is slowing because TFP growth is slowing, and TFP growth is a function of a slowing growth of effective world research efforts. These declining efforts imply that scientists, innovators, researchers etc. allocate less time to the production of knowledge for the same reasons workers decide to work less hours. The supply of labor depends on taxes, the consumption-output ratio, the share of capital in production, the relative value of leisure, and demographic among many other variables.
Here is the trend in the growth of research efforts.
The conclusion of this story is that New Zealand productivity growth is bound to be relatively low if NZ does not exploit/use the effective world research efforts or/and if the knowledge diffuses at a slower rate, or/and if the productivity growth in the developed countries is declining.
But why should we exploit more usable knowledge or have the frontier technology and best practices diffuse faster? We don’t produce and export new varieties of high quality skill-intensive goods at low cost, do we?
 Prescott, E. C., Needed: A theory of Total factor Productivity, International economic Review, Vol. 39, Issue 3, (August 1998), 525-551.
 Before joining the EU, the U.K. bought all New Zealand’s farm products so competition was not an issue. And I say seedless melon because I saw quality Australian seedless melon selling for about 80 New Zealand dollars a melon in the Middle East.
 Johnson, R., W. A. Razzak, and S. Stillman, Has New Zealand benefited from its investments in research and development, Applied Economics, 2007, 39, 2425-2440.
 Simon Kuznets, Population Change and Aggregate Output in Demographic and Economic Change in Developed Countries, Universities – National Bureau, Columbia University, 0-87014-302-6, 1960, 324-351.
 Research effort is the sum of the product of (weighted) stock of human capital and the number of researcher.