The "feel-good" factor if New Zealand limited foreign investment would probably not be enough to outweigh the inevitable "feel-bad" consequences of a lower standard of living, the New Zealand Institute of Economic Research (NZIER) says.
Polls indicated about three-quarters of New Zealanders wanted overseas investment rules tightened, although there was also a high awareness that an open economy was important for growth, NZIER chief executive Jean-Pierre de Raad said in a discussion paper.
Restricting overseas investors' access to the economy would be a damaging policy, and not worth the positive feeling that New Zealanders owned their own backyard or short-term popularity for politicians.
Any move away from an open investment regime would be seen as limiting New Zealand's growth potential, and investors and credit agencies would react accordingly, he said.
Borrowing costs would rise, which would reduce economic growth and New Zealanders' income, and access to overseas capital and knowledge would be limited.
"New Zealand simply doesn't have the capital market depth to afford to be so picky."
Land-based foreign investment was small compared with other types, at $4.9 billion in 2009 compared with around $27b invested in manufacturing and $192b in finance and insurance, according to Statistics New Zealand.
The latest concerns follow the proposed sale of a number of Crafar family dairy farms to a Hong-Kong-based company, the sale of a 51 percent stake in Synlait Milk to China's Bright Dairy&Food Co, and the proposed takeover of New Zealand Farming Systems Uruguay to Singapore company Olam.
Most direct foreign investment comes from Australia.
"...Any permanent government response to concerns about foreign ownership of land will impose a wide range of costs on all parts of the New Zealand economy, primarily through higher borrowing costs and the risk of retaliatory action by other governments," Mr de Raad said.
