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.
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