"It seems reasonable that making increased investments both in hardware and software would help to create growth in New Zealand's IT sector and also in other sectors that use the technology to be more productive."

Skilling says that if New Zealand wants to increase its productivity then substantially increasing the amount of investments in IT will be important.

"And that is even more the case because of our location -- we are a small economy far away from other markets."

One of the optimistic scenarios is that technological progress will lessen the negative effects of distance. But Skilling warns that it will not happen automatically. Investments in technology have to be made and there has got to be a broad uptake of that technology across the community.

"Broadband is a good example," he says. "New Zealand has one of the lowest broadband penetration rates in the OECD. In principle broadband would be great. It enables all sorts of things that were impossible ten years ago, but if the use of broadband is not widespread in the economy the benefits we are going to get from it are much less than they could be."