The Standards Council of New Zealand, and several industry stakeholders, co-sponsored Business and Economic Research Ltd (BERL) to undertake a project to measure the economic effects of Standards on the New Zealand economy, in particular in the building and construction sector.
The project involved several stages:
- a literature review to examine the economic benefits and costs of Standards, and to find a suitable methodology to adopt in the second and third stages
- an econometric estimation to establish the nature and quantum of the link between Standards and productivity in New Zealand; and interviews with key Standards Council stakeholders and industry representatives within the building and construction sector to analyse how Standards help the sector to reduce costs and risks, and increase the quality of the goods and services being produced
- economic modelling to illustrate the link between productivity and wider economic performance, in particular Gross Domestic Product (GDP) to provide a macro economic perspective
- completing several detailed case studies looking the impact and effects of particular Standards on the building and construction sector (to provide a micro economic perspective).
The literature concluded that Standards prevent market failure by preventing information asymmetry, and allowing and encouraging innovation. Standards also improve efficiency of markets by creating economies of scale, allowing network externalities, and reducing transaction costs.
The econometric estimation established a positive and statistically significant link between Standards and labour and capital productivity. The case studies provided qualitative data in support of the benefits of Standards including reducing transaction costs, preventing market failure, mitigating risk, and, again, creating economies of scale which improves productivity. The BERL research also highlighted that macro economic gains are a function of both more efficient production (labour productivity) and better decision making (capital productivity) within the New Zealand economy.
Data from the econometric analysis and the case studies were fed into the third stage of the project, the economic modelling. This indicated that Standards are a powerful economic lever and, over time, could lead to a 1.0 percent – or $2.4 billion – increase in New Zealand's annual economy-wide GDP.