On the Productivity of New Zealand State and State-Integrated Schools: Is Bigger Better?

Demographic and economic shifts around the world have put the question of school size and efficiency at the centre of public administration. The decline in enrolment numbers over the past three decades has seen many small, rural and remote schools closed or consolidated. Despite the importance of the scale effects on policy decisions, the literature on this issue is thin, with most of the studies focusing solely on school data from the United States (US). This study uses New Zealand school data at the territorial level and uses a fixed-effect stochastic frontier production model to decompose the sources of total factor productivity. Empirical results show that productivity among New Zealand public schools decreased at an average rate of 5 per cent between 2004–2017, mainly due to a 5 per cent decline in scale effects. The results of this study underscore the fact that New Zealand state schools operate at diseconomies of scale and therefore, increasing school size through mergers and closures of small and rural schools would not necessarily result in increased productivity. For this reason, policymakers need to carefully examine the region-specific factors that contribute to the heterogeneity in scale effects that affect school performance before actively adopting overseas experience, which, on the downside, may lead to cost increases and worsen student outcomes in small and rural communities.