We miss foreign capital - study

New Zealand is missing out on badly needed foreign capital because of its highly restrictive overseas investment regime, new research says.

The study, conducted by New Zealand Initiative fellow Luke Malpass and Capital Economics director Bryce Wilkinson, said this country had the sixth most restrictive overseas investment requirements of the 55 developed economies measured by the Organisation for Economic Co-operation and Development (OECD).

Only Japan, India, Indonesia, Saudi Arabia and China had more restrictive foreign investment regimes, according to OECD data.

And Malpass said New Zealand had the most restrictive overseas investment requirements of all 55 countries when it came to manufacturing.

The researchers said that out of the four criteria considered by the OECD, nearly all of this country's restrictiveness was in the "screening and prior approval" category, which was the result of the Overseas Investment Act.

"Bluntly put, New Zealand relies more than any other OECD country on ministries and ministers second-guessing investment intentions and possible outcomes, and on the most contrived criteria," said Malpass.

The act introduced a "sensitive land" category on any land over 5ha or 0.4ha near water.

"The definition of sensitive land is absurdly broad," Malpass said.

"Many bars and hotels on the Wellington or Auckland waterfronts are sensitive land [and] any manufacturing operation with a reasonably sized site or attached freehold land is sensitive land."

New Zealand Initiative executive director Oliver Hartwich said all New Zealanders bore the cost of high barriers to foreign investment and this country needed an overseas investment regime that followed international best practice, even if it meant scrapping the act.