Why does Australia grow faster than New Zealand?

We analyse the divergence in productivity between Australia and New Zealand, with a special emphasis on quantifying the industry-level contributors to the divergence and on whether the countries have comparable growth processes. The Convergence Hypothesis is tested between industries and across countries. We find that two industries satisfy our definition of Conditional Convergence (Agriculture, Forestry and Fishing and Cultural and Recreational Services). Cointegration tests reveal more stochastic trends governing Australian productivity than in New Zealand. Decompositions of the divergence to the industry-level suggest large contributions from differences in labour growth across the two countries, and significant contributions from cross-country structural differences. Most of the industries add to the divergence, with particularly large contributions from differences across the Mining and Wholesale Trade industries. The evidence suggests that the growth processes of the two economies are fundamentally different, thereby questioning the relevance of comparisons between them