A $50 million annual subsidy has boosted foreign doctoral student numbers more than sixfold since 2005.
A new report by Education NZ says international students have jumped from 14 per cent of all doctoral students in 2005 to 47 per cent in 2016 since a 2005 decision to cut their fees to the same as domestic students.
Numbers have leapt from less than 700 in 2005 to 4475.
The subsidy means doctor of philosophy (PhD) students at the University of Auckland pay only $6970 a year, the same as domestic students, compared with $39,529 for international doctoral students in education, fine arts, music and clinical psychology.
Nationally, the subsidy is budgeted to cost $50m in this financial year.
The research done by the foreign students has helped to boost NZ universities' international rankings by raising the rate at which the average NZ academic is quoted in the academic literature from 96 per cent of the world average in 2001-05 to 126 per cent in 2010-14.
"All eight NZ universities are now in the top 450 of the QS world university rankings, compared to three in 2005," the report says.
Universities NZ director Chris Whelan said the subsidy gave NZ universities an advantage over their overseas counterparts.
"We don't know of any other jurisdiction that does it," he said.
"Lifting rankings has a flow through to our ability to recruit students, and our ability to recruit world-class academics, and our ability to collaborate with researchers overseas.
"It's this that is really strongly contributing to the rankings of a university like Auckland and feeding that virtuous cycle which works to attract more international students."
The report argues that New Zealand's 106,000 international students help the country in many other ways, apart from their direct $4.5 billion-a-year economic effect.
It profiles Beca electrical engineer Ethan Wu, who came as an international student from China, graduated from Auckland University in 2008 and now leads several big building projects for Chinese investors.
Wu, now 33, said he used his NZ experience to help investors understand NZ regulations and market conditions.
"I think my particular strength is having the understanding of a different culture and supporting them through a different language. That breaks the barrier for quite a lot of clients," he said.
A keen tramper, Wu offers to take his clients hiking in the weekends as well as showing them around Auckland.
"It's the countryside that is the more beautiful side of New Zealand," he said.
"They mostly take me up on that. I start treating them as my friends. I invite some of them to my house for a Kiwi barbecue. That helps."