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Complexity and fragility: an assessment of New Zealand trade relations

In the decade 2010-2019, international trade relationships started to show some new patterns with complex and fragile features. These patterns are attributed to various factors, including globally slower demand, greater participation in Global Value Chains (GVCs), and the application of non-tariff measures (NTMs). These factors considerably increase the difficulty of measuring and predicting future trade relationships at the sectoral and the firm level. In order to provide a practical and empirical contribution to the literature on international trade and policy, especially New Zealand trade policy, this thesis assesses the past performance, identifies the determinants, and predicts the future patterns of New Zealand trade relationships using emerging methodologies. It consists of five separate but interconnected studies, of which one is published, one is under review, and two are about to be submitted to academic journals for publication. The first study provides an overview of New Zealand’s participation in GVCs and identifies the key determinants of all OECD countries’ participation. It finds that New Zealand has limited participation in GVCs. Also, it observes that most underlying drivers considered have a diverse impact on the domestic and international component of GVCs. Specifically, GDP growth, R&D, tariffs, credit availability, corruption perception and port infrastructure are the most significant factors influencing OECD countries’ participation. The second, third and fourth studies assess New Zealand trade relationships by investigating the duration and survival of imports and exports in multiple sectors. Results from these studies can help uncover the past trade performance of New Zealand different agricultural products in details. A common empirical approach employed in these studies includes a decomposition of the observed trade relationships by sequence and an application of the discrete-time hazard model of survival analysis. To be more specific, the second study examines New Zealand horticulture imports from 1989 to 2019. The results indicate that around 58 per cent of the trade relationships had survived only one year, and approximately one-quarter of them attempted to enter the New Zealand market multiple times. As regards the determinants, duration of the sequence, the number of entries, distance, GDP per capita, import prices, domestic production, the number of import origins and export destinations are found to be the significant factors affecting the hazard rate of import survival. Most importantly, the estimated impacts of the sanitary and phytosanitary (SPS) measures required by the New Zealand Import Health Standards (IHS) are mixed, depending on the type of treatment and the exporting countries’ level of development. The third study, following the same methodology, focuses on New Zealand dairy exports. It indicates that dairy export relationships are dynamic with numerous entries and exits to and from foreign markets. At the sequence level, around half of the relationships survived for 1-2 years only. As regards the determinants, duration of the sequence, left-censoring, initial export, decomposed sequences, export price, the number of cows available for dairy production, the number of import origins and export destinations, and destination partner’s GDP, are the most significant factors reducing the hazard rate of export relationships. Most importantly, the results indicate that technical barriers to trade significantly decrease the hazard rate. Only pre-shipment inspection and contingent trade protective measures are significant impediments to New Zealand dairy export relationships. The fourth study examines the short-lived nature of honey trade relationships as a proxy of the competitiveness of 14 globally leading honey exporting countries, including New Zealand. The findings confirm that approximately 62 per cent of the export sequences survived no more than three years across countries. Among the factors examined, longer duration, multiple entries, left-censoring, distance, and the number of suppliers are the most significant determinants decreasing the hazard rate of honey exports. Further, the results provide some evidence that both food safety and security significantly affect countries’ export survival. It concludes that among the selected sample of countries, Hungary, Belgium, Germany, China, and New Zealand are relatively ‘competitive’ as their honey export sequences are associated with lower hazard rates and longer duration. The last study of this thesis aims to identify the potential destinations of New Zealand dairy exports in the context of dynamic trade networks, using a Link Prediction (LP) approach. It observes that among the algorithms of LP, the Weighted Resource Allocation (WRA) index has the highest accuracy in predicting potential dairy trade relationships. It also anticipates future patterns of those potential trade relationships given their prior export duration and survival patterns. The results indicate no significant ‘Weak Ties’ effect on dairy trade networks. Indeed, common trade partners with larger trade volume are more important than those with smaller volume in helping two disconnected countries trade. Besides, new dairy trade relationships that are most likely to emerge involve countries such as New Zealand, Ukraine, Peru, and Malaysia. Finally, trade relationships such as between New Zealand and Turkey, Malaysia and Switzerland, and the Czech Republic and the U.S. are predicted to be extremely active with multiple sequences of trade in the future, if no trade promotion policies will be implemented. Overall, the empirical outcomes of this thesis provide important policy implications for both the New Zealand government and local decision-makers in charge of trade, given the relevant information on the patterns, determinants, and future trade opportunities in multiple sectors.
Type of thesis
Luo, Y. (2020). Complexity and fragility: an assessment of New Zealand trade relations (Thesis, Doctor of Philosophy (PhD)). The University of Waikato, Hamilton, New Zealand. Retrieved from https://hdl.handle.net/10289/13904
The University of Waikato
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