6. Where does New Zealand’s economy happen?

Vox recently published a list of “surprising maps” that documented counterintuitive or little-known facts about the world. Number 15 on the list was this map, which shows that 50% of US GDP is produced in a mere 23 urban areas:

This map shows the economic importance of cities, which are tremendously productive precisely because they concentrate a lot of skills, ideas, and capital in a small area. But surely things are different in New Zealand due to our much more agriculturally-based economy?

I was curious about this, so I got some data from Statistics New Zealand to see how economic activity is distributed in NZ. First, I got the Regional GDP statistics for 2013, which break down the economy at a regional council area. Second, because some regional councils are much bigger than the cities they contain – think Canterbury versus Christchurch – I used 2013 Census data on employment at a detailed geographic level to proportionately allocate out regional GDP based on the share of regional employment in a particular area (see footnote 1). Finally, I grouped the data up by main urban area – essentially, city boundaries plus satellite towns like Pukekohe and Rolleston.

The results are shown in this map. The majority of New Zealand’s economy is located in its three main cities – Auckland, Wellington, and Christchurch. There is more economic activity happening within these three orange blotches than outside of it:

All together, 56% of New Zealand’s GDP is produced in a mere 0.9% of its total land area. While rural and urban economies are interdependent – they sell goods and services to each other – this data highlights the degree to which New Zealand’s economy is now an urban economy. This won’t change any time soon – if we are to generate new sources of wealth in the future, it will happen in the cities.

I also took a look at the GDP produced in New Zealand’s smaller cities. Overall, the 15 largest urban areas in New Zealand are home to over three-quarters of our national economy. The full results are shown in the following table:

One other interesting fact drawn from this table is that Auckland’s economy outweighs, by a large margin, the non-urban economy (“Rest of NZ”).

Footnote 1: This is a fairly simple approach to allocating out regional GDP that ignores the effects of:

• Differences in industrial structure between cities and adjacent rural areas – cities tend to be home to higher-productivity industries such as professional services and manufacturing
• Within-industry differences in productivity that depend upon location – after controlling for firm characteristics, businesses located in denser areas tend to be more productive than similar firms in other areas.

It’s certainly possible to account for these well-documented effects. In my day job, I develop methods to take a much more detailed look at New Zealand’s economic geography. (But I prefer to get paid for that rather than doing it for free on a Sunday morning!) Not accounting for differences in industry structure and agglomeration economies means that I have probably underestimated the share of New Zealand’s economy produced in cities.