Analysis of Policy Reforms in the New Zealand Forest Manufacturing Sector

Abstract

New Zealand experienced dramatic restructuring programs after the Labor party won the national elections in 1984. Deregulation of price controls, removal of the log export ban, and privatization of public assets were the main shocks to the forest sector. The purpose of this paper is to analyze the impacts of these reforms on wood and paper industry cost, production, and cost efficiency. Unlike previous work, the effects of privatization and deregulation are compared to determine which shock had the most influence on the forest sector. Results show that production decreased, total cost increased, and cost efficiency decreased after deregulation for the sector, and that deregulation was more significant than privatization for the wood and paper sectors. In particular, removal of the log export ban had the greatest impact, while privatization had little effect on industry production and cost. This suggests that countries with comparative advantages in wood processing who implement deregulation or privatization may suffer through a short term period of lower cost efficiency as the economy adjusts to higher input costs in those sectors. In New Zealand's case, the adjustments most likely affecting efficiency have been investments in new technologies, which require time to attain maximum efficiency. The results are contrary to other studies that have predicted increased efficiency as a result of privatization.