Impact of Economic factors on economic growth in New Zealand and Australia.

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Introduction

Economic growth is the process of increasing national income, primarily through macroeconomic indicators such as the Gross domestic product through per capita income. According to the modern economic growth theory, the factors that affect economic growth are geographical factors, political factors, and cultural factors. The three elements are challenging to change, so most of them study economic factors. It is necessary to control the impact of the differences in geographical factors, political factors, and cultural factors on the economy, to analyze the influence of economic factors on the economy. In the report, the macroeconomic indicators of New Zealand will be analyzed. The reason for the choice of the country for analysis is because of the similar geographic location, political and cultural factors of Australia and New Zealand. Therefore, a comparison of the two countries will provide an analysis of the impact of economic factors on economic growth.

Empirical Analysis

Australia’s and New Zealand measure their economic Growth through GDP, which is the market value of final goods in an economy over some time. The gross domestic product changes due to the influences that develop in the economy. The international monetary fund bases GDP on the per capita income level and export diversification and the degree of integration into the global financial system. According to the national bank, countries’ gross income determines the growth structure of a nation. The level of the revenue leads to the bank classifies countries into low, lower-middle, upper-middle, and high-income levels. Infrastructure also contributes to income. For example, Australia’s infrastructure is considered a critical factor for economic growth and development (Baker, 2015). Strategic infrastructure such as airports is essential in increasing GDP due to its feature of connecting countries. In the two countries, trade is among the main activities affecting national income. Also, financial flows play an essential role in enhancing economic growth.

According to data from the world bank, the gross domestic product for the last 20 years has been fluctuating over time. In comparison to the two countries, consideration will be made on a substantial money percentage in GDP, Foreign development investment net outflows, GDP per capita growth, and GDP growth. The comparison is shown in the graphs below:

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The figures for broad money show the measure of cash in circulation in an economy. For New Zealand, some years did not record the amount of money hence decreasing to zero and rising again.

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Cointegration and error correction methods, which use the balance of forces to produce long-term levels in the variables. This relationship is caused by other factors that influence the gross domestic product and also the national economic growth. Through the methods, the relationship between the gross domestic product and the factors influencing the increase and decrease of the revenue can be determined. The causal relationship is essential to identifying the influencers of economic growth. In Australia, tourism, airports, and air transport contribute a lot to the level of gross domestic product attained by a nation (Baker, 2015). Airports provide directly through the creation of employment and chain of suppliers. The income and employment generated by the airport act as a driver of productivity growth and encourages new investments.

Such infrastructures enhance trade, both internal and external. These activities lead to foreign direct investments, which also contribute to the increase in the gross immediate product in a nation. This occurs in both New Zealand and Australia. Financial development and trade in exports and imports in Australia have a high contribution to the revenues of the country hence increased economic Growth (Rahman et al., 2015). The trades lead to foreign direct investments, which is an income to the country. The comparison of the foreign direct investment of the two countries is represented in the graphs below:

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The economic growth of Australia and New Zealand represented by their gross domestic product have shown a reduction in the local product within the last year. However, the flow of the income of the two countries has almost the same stream of revenue. The disparity is very low. In the growth of broad money, Australia is showing a higher amount of money in circulation. This indicates that the economic activities in the country are more compared to New Zealand. Australia identifies the causality of economic growth to energy consumption (Rahman & Mamun, 2016). Energy consumption tends to contribute more to the Gross product of the country since it is one of the main activities in the country. In research to find the correlation between education and economic Growth (Khan & Bashar, 2015). In New Zealand, the causal relationship for education to economic growth is negative. Therefore, gross domestic product is influenced by investment trade.

Human capital theory emphasizes on the role of education and training in human capital process. Such an investment leads to an increase in skills which then leads to growth of the economy through labor and innovations (Shahiduzzaman & Alam, 2014). Human capital formation is derived from growth and the increase in lifetime income dur to education. The international monetary fund statistics provided the data on labor contributions which relates of the investment in human capital which increases the contributions through productions. New Zealand and Australia are investing in foreign education where students from China study in the countries. The educational investment leads to growth of the economy through development in skills. The graph for the labor contribution is as shown below:

Human capital can be measured through the technological developments that occur in a country. Increased technological information technology and labor. Increased labor increases savings, which stimulate economic growth through an increase in investment (Li, 2019). The increased investment is also contributing to the growth of the economy. Natural resource-abundant economies attract investors who contribute to the per capita income in both countries. More investments raise economic growth due to increased revenues in the country (Anderson, 2017). The data gathered show that there are fewer investments in the states; hence the GDP is not rising at higher rates. Also, the manufacturing industries and foreign trade that involve exports and imports are high-income activities that enhance high contributions to the gross domestic product of a country.

Conclusion

Economic growth is increased by the amount of income received by a country. The causal factors that influence economic growth are such as gross economic growth, investments, per capita income, and exports and imports. Australia and New Zealand’s economic growth is reliant on the commercial activities of the country, such as investments. The GDP of the two countries is almost the same due to the political, cultural, and geographical factors that are similar. Also, on the human capital, the two countries experience a similar growth due to the geographical similarity. Also, to improve future incomes, other economic activities such as employment opportunities need to be created to increase per capita revenue hence leading to a rise in economic growth.

References

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Baker, D., Merkert, R., & Kamruzzaman. (2015). Regional aviation and economic growth : cointegration and causality analysis in Australia. Journal of Transport Geography, 43, 140–150.

Rahman, M. M., & Mamun, S. A. K. (2016). Energy use, international trade and economic growth nexus in Australia: New evidence from an extended growth model. Renewable & Sustainable Energy Reviews, 64, 806–816.

Rahman, M. M., Shahbaz, M., & Farooq, A. (2015). Financial Development, International Trade, and Economic Growth in Australia: New Evidence From Multivariate Framework Analysis. Journal of Asia-Pacific Business, 16(1), 21–43.

Anderson, K. (2017). Sectoral Trends and Shocks in Australia’s Economic Growth. Australian Economic History Review, 57(1), 2–21.

Sheng, Y., Drysdale, P., & Chen, C. (2017). ECONOMIC GROWTH IN CHINA AND ITS POTENTIAL IMPACT ON AUSTRALIA–CHINA BILATERAL TRADE: A PROJECTION FOR 2025 BASED ON THE CGE ANALYSIS. The Singapore Economic Review, 64(4), 1745005.

Li, C. (2019). Analysis of domestic saving and economic growth in Australia and Korea. The Frontiers of Society, Science and Technology, 1(4).

Khan, H., & Bashar, O. K. M. R. (2015). Social expenditure and economic growth: Evidence from Australia and New Zealand using cointegration and causality tests. Journal of Developing Areas, 49(4), 285–300.

Shahiduzzaman, M., & Alam, K. (2014). Information technology and its changing roles to economic growth and productivity in Australia. Telecommunications Policy, 38(2), 125-135.