The visible hand in economics

A Strict Application of “Kiwi Made” Actually Hurts Our Exporters

Posted on: July 26, 2007

While I am all for supporting the domestic economy, I think that a strict interpretation of the requirements for a good to be labelled “Made in New Zealand” actually harms our exporters. People get upset when they find out that something that is “Made in New Zealand” is manufactured using inputs purchased from another country. Any attempt to put pressure on exporting firms to use entirely NZ inputs is detrimental given that we are a small open economy with a very volatile exchange rate. The argument I’m making has absolutely nothing to do with price or quality but instead centres on a corporate finance concept known as “Natural Hedging”. Put simply if you have a company that sells its output in a foreign currency, purchasing your inputs in that currency naturally hedges movements in the exchange rate.  A good example of this is Navman who appear to be doing fine because they purchase a lot of their inputs in US$

While I accept that a good should still in essence be New Zealand made, I  believe that when the firm is an exporter, they should outsource as much of their inputs as possible.

Advertisements

4 Responses to "A Strict Application of “Kiwi Made” Actually Hurts Our Exporters"

I think that goods should be made overseas, insofar as the increase in consumer surplus from this exceeds the reduction in producer surplus.

So in a sense I think we should only make products that we are internationally competitive in, preferably value-added products with a high world price 😉

I think that we need to consider the consequences of being so open to foreign trade. The US went through a long period of isolationism, which it has recently returned to, and look how successful it has been. A lesson in that perhaps?!

Of course America is a large economy that can provide a significant number of its own goods. Furthermore, you could put down the success of America to free trade – free trade between the 50 states. Each US state has a significant amount of independence from the federal government, and as a result each state has had free trade with its 49 neighbors for a long time.

I don’t think New Zealand will function well with isolationist policies. After all, if we close our borders I won’t be able to buy an Xbox 360 when Fable II comes out, and that would significantly effect my welfare 😉

very interesting, but I don’t agree with you
Idetrorce

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

Add to Google
%d bloggers like this: