So an investment bank comes to the conclusion in a report that too few New Zealand firms are listed, especially on New Zealand’s stock exchange.
Why do people take all this capital deepening rubbish seriously – we are a small open economy, with open access to financial markets. As long as price signals are in place, and property rights are protected, people will invest in things given the incentives they face. Trying to get people to invest, and invest in specific place, just for the sake of it is bad policy.
When the goal is to make sure that “NZ Inc” has the highest reading on the “GDP meter” as possible this might make some sense (I stress might) – but if we are actually interested in achieving the best outcome for society, I haven’t seen a good argument for capital deepening. Yes, I’ve read papers on it – but I’ve always found that they didn’t cover the underlying concept of allocation and welfare in the context they should be covered.