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Published online by Cambridge University Press: 07 November 2014
The purpose of this paper is twofold. Primarily it is an attempt to isolate some of the structural parameters governing New Zealand's balance of trade during the inter-war period. A secondary end, a by-product of the first, is to throw some light on the controversy between “elasticity pessimists” and “elasticity optimists.” Born out of very real problems concerning monetary policy on the international level, and carried on by some of the most acute and productive minds among economists, this controversy has, I believe, been in general a good and highly fruitful one. If any criticism is to be made, it must be methodological, and concern itself with the statistical procedures used by one side, and the tendency of the other side toward a priori refutation instead of empirical investigation. I also believe that, while the statistical data are highly imperfect, the best possible use has not been made of what data exist, and that at this stage only more, and more carefully weighted, evidence can help us on. The present investigation offers only a little of the great amount of such evidence which is needed.
Following a few theoretical remarks, three commodities—butter, lamb, and cheese—will be studied, in order to increase our information about New Zealand's trade balance. Only their behaviour in the United Kingdom market is analysed. This procedure immediately raises the question: how important are these goods as part of New Zealand's exports and how important is the United Kingdom market? The answer is that up to 1929 the sale of these three products in the United Kingdom made up about one-half of New Zealand's export receipts. Had wool been included, this proportion would have risen to about 70 per cent. After 1929 it declined somewhat, but never fell below 40 per cent. From this it seems to follow that whatever determines the demand in the United Kingdom for these three products affects significantly but not overwhelmingly New Zealand's balance of trade on the export side.
I am indebted to Professor C. G. F. Simkin for his generous and patient advice. I have also profited greatly from discussions with Mr. J. Rowe, of Auckland University College, and with my wife, Louise P. Lerdau.
1 Among a large selection of pertinent statements, the reader may be referred to the following: Chang's, Tse Chun articles in the Economic Journal, 1946 Google Scholar, the Review of Economic Studies, XIII, no. 2 Google Scholar, the Review of Economics and Statistics, 1948, and his book Cyclical Movements in the Balance of Payments (Cambridge, 1951)Google Scholar; Orcutt's, G. H. “Measurement of Price Elasticities in International Trade,” Review of Economics and Statistics, 1950 Google Scholar; Machlup's, Fritz “Elasticity Pessimism in International Trade,” Economia Internazionale, 1951 Google Scholar; Haberler's, G. “The Market for Foreign Exchange and the Stability of the Balance of Payments,” Kyklos, 1949 Google Scholar; and Viner's, Jacob International Trade and Economic Development (Oxford, 1953).Google Scholar While these might be called fundamental statements, the literature touching on the problem is incomparably larger, including particularly many of the articles by T. Balogh, L. Metzler, D. H. Robertson, T. Polak, and Dean Williams.
2 Tintner, G., Econometrics (New York, 1952), 133 Google Scholar, finds for the United States that: “Agricultural supply depends largely on the weather and other factors not included in the analysis.”
3 “The Demand for Food in the United Kingdom before the War,” Metroeconomica, III, 1951.Google Scholar
4 Cyclical Movements in the Balance of Payments, 114.
5 National Income and Outlay (London, 1937), 209. Italics mine.Google Scholar
6 Cyclical Movements in the Balance of Payments, 101. Italics mine.
7 Houthakker, H. T. and Tobin, T., “Estimates of the Free Demand for Rationed Foodstuffs,” Economic Journal, 1952.CrossRefGoogle Scholar
8 Haavelmo, T., “Family Expenditure and the Marginal Propensity to Consume,” Econometrica, 10, 1947.Google Scholar
9 Houthakker, and Tobin, , “Estimates of the Free Demand for Rationed Foodstuffs,” 117 Google Scholar, and Stone, , “The Demand for Food in the United Kingdom before the War,” 10.Google Scholar
10 Cyclical Movements in the Balance of Payments, 114.
11 “Estimates of the Free Demand for Rationed Foodstuffs,” 116.
12 “The Demand for Food in the United Kingdom before the War,” 26.
13 Ibid., 24.
14 See Hampton, R. G., “Export Control Boards in New Zealand,” in Commodity Control in the Pacific Area, ed. Holland, W. L. (Institute of Pacific Relations, 1935).Google Scholar
15 New Zealand Statistical Report of Factory Production, 1931–2.
16 The Board was set up originally to defend producers against the monopolistic buying practices of the freezing works. Later the freezers became more closely associated with the Board, when both became concerned over the British market.
17 Bergstrom, A. R. in “New Zealand's Export Supply Function,” Economic Record, 06, 1951 Google Scholar, finds a negative price elasticity of —0.32 (±0.09) with a two-year lag and of —0.41 with a three-year lag. Probably the one-year lag would give a result closer to zero.
18 Ellsworth, P. T., The International Economy (New York, 1950), 565.Google Scholar