Geographic proximity and productivity convergence across New Zealand firms

To examine the extent to which to new productivity-enhancing ideas and technologies diffuse within the New Zealand economy, this paper examines the speed with which lagging low-productivity firms converge towards leading high-productivity firms at both the local and national levels. Results show that New Zealand firms have faster productivity convergence towards the local frontier compared to the national frontier, suggesting that knowledge diffusion is geographically localised to some extent. In addition, this paper tentatively explores the relationship between the extent to which firms trade their output over geographic distance (domestic tradability) and productivity convergence. Results show a positive link between domestic tradability and productivity convergence to the national frontier, suggesting that firms that operate across larger markets have greater potential to learn from firms at the national productivity frontier within the New Zealand economy.