Trade over distance for New Zealand firms: measurement and implications

This paper investigates the proximity of firms to their customers to assess the extent to which different industries trade their output over distance within New Zealand. At the sector level, the output of the primary sector is traded across distance to the largest extent, followed by the goods-producing sector and then the services sector. However, these broad results mask considerable variation at the industry level. The paper also tentatively assesses the correlation between tradability and firm productivity. This shows that firms in the goods-producing and service sectors that trade their output over distance tend to have higher labour productivity than firms located closer to their customers and more focused on the local market. The paper investigates three possible reasons for this link between domestic tradability and labour productivity. In short, the potential for firms to agglomerate, along with the scale and competition benefits that large markets allow, may underpin productivity improvements compared to firms that produce output only for the local market.