Economic Prospects for Small Island Economies, Particularly in the South Pacific, in a Globalising World (ECONOMIC THEORY, APPLICATIONS AND ISSUES WP 43) (original) (raw)
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Globalization and the island economies of the South Pacific
Routledge Studies in Development Economics, 2002
This study has been prepared within the UNU/WIDER project on Globalization and the Obstacles to the Successful Integration of Small Vulnerable Economies which is co-directed by Dr Mansoob Murshed. UNU/WIDER gratefully acknowledges the financial contribution to the project by the Ministry for Foreign Affairs of Finland.
Small countries, such as Pacific islands countries (PICs), vary considerably in the extent and in the ways in which they are linked to the global economy. Particularly within PICs, households and families, and different social groups also differ in their dependence on markets, cash and foreign exchange incomes for their economic welfare. A dualistic economic model is inadequate as a means for specifying the distribution of this dependence. There is a need to analyse the distribution of such dependencies more precisely using, amongst other things, relative frequency distributions. It is hypothesised that increased integration of PICs into the global economy combined with global economic reforms can be expected to result in reduced private investment in many PICs, mainly because of outflows of investible funds from PICs to take advantage of higher economic returns elsewhere. In turn, this is liable to reduce real wages and employment in these countries. At the same time, there are likely to be increasing pressures for emigration from PICs as income differentials between them and higher income countries, such as Pacific Rim countries, grow, and political demands to allow freer international movements of labour are likely to magnify as PICs demand full commitment to the globalisation concept and as various employer groups in higher income countries seek to cope with growing international economic competition brought about by increasing globalisation by importing labour. The possible implications of these trends for the economic development/future of PICs are considered.
GLOBALIZATION CHALLENGES FOR SMALL ISLAND DEVELOPING STATES
2007
This thesis is dedicated to Paolo Benassi, who spent one inspiring year with me on the islands of Fiji. He always helped me to view the world from a variety of perspectives and enlarged my spirit of adventure. Furthermore, I want to thank my mother Brigitte Augustin and my sister Christina who always supported and helped me to find my own way.
As pointed out in this article, small island economies are diverse in their nature and in the challenges they face. A taxonomy of these economies is provided. The overview takes account of small island economies that are satellites of large countries as well as those which are independent nation states. Nevertheless, the emphasis here is on small island economies that are remote from central economies or disadvantaged in other ways. These include many island nations in the Pacific and elsewhere. Such economies suffer from diseconomies of scale in economic activity, are prone to imperfect market competition, and experience high transport and trading costs for a variety of reasons which are outlined. The gravitational pull of stronger central economies and central places favours net out migration from these economies, particularly a brain drain, as well as net private capital outflows. These tendencies often stifle local economic development. Such economies frequently depend on aid from foreign or overseas places for maintaining the levels of income of their inhabitants; income levels which in many cases are relatively low. Income levels may be precarious in such economies because they are vulnerable to variations in economic, natural and political forces. They usually lack diversity in their natural resources and in their exports. A natural disaster can devastate their whole island economy so that little resilience remains to deal with the disaster by relying on the island’s own resources. Whether or not such economies are particularly prone to political disturbances is unclear, but when such disturbances occur they tend to impoverish those areas because net migration and net capital outflows increase and inbound tourism (which is often an important source of income for such economies) dwindles. The environmental situation facing small island economies varies. Some have undergone rapid urbanisation and centralization of their populations and this has caused significant pollution problems and water availability problems. Furthermore, some are at considerable risk from climate change. Using mathematical relationships, it is demonstrated that small island nations will lose (on average) proportionately more of their land mass as a result of sea-level rises than larger nations. Increased urbanisation of such economies usually increases their economic vulnerability because it is normally associated with greater dependence on international market exchange and results in increasing urban-bias in politics.
The MIRAB model of Pacific island micro-economies was developed in the mid-1980s by the New Zealand economists, Bertram and Watters, and dominated the literature on the economics of small island nations and economies until alternative models were proposed two decades later. Nevertheless, it is still an influential theory. MIRAB is an acronym for migration (MI), remittance (R) and foreign aid (A) and the public bureaucracy (B); the main components of the MIRAB model. The nature of this model is explained and the importance of distinguishing between the two processes involved in it (one based on foreign aid and the other on overseas remittance) is emphasised. Evidence is given of the importance of migration and overseas remittance for the functioning of some Pacific island microstates, such as Tonga. Yet, it is argued that no single model adequately typifies the economic situations of Pacific microstates and micro-economies because of their diversity. Even economies that have been classified as MIRAB economies can be very different. The newer TOURAB, SITE and PROFIT models have similar limitations. In order to understand adequately the economic situation of Pacific island microstates (including their economic vulnerability, their sustainability, and political merchantabilities), it is necessary to adopt a more holistic approach which takes account of historical, cultural and environmental factors. This is illustrated by the case of Nauru.
The MIRAB economic model of Pacific island microstates was developed in the mid-1980s by the New Zealand economists, Bertram and Watters, and dominated the literature on the economics of small island nations until alternative models were proposed two decades later. Nevertheless, it is still an influential theory. MIRAB is an acronym for migration (MI), remittance (R) and foreign aid (A) and the public bureaucracy (B); the main components of the MIRAB model. The nature of this model is explained and the importance of distinguishing between the two processes involved in it (one based on foreign aid and the other on overseas remittance) is emphasised. Evidence is given of the importance of migration and overseas remittance for the functioning of some Pacific island microstates, such as Tonga. Yet, it is argued that no single model adequately typified the economic situations of Pacific microstates because of their diversity. Even economies that have been classified as MIRAB economies can be very different. The newer SITE and PROFIT models have similar limitations. In order to understand adequately the economic situation of Pacific island microstates (including their economic vulnerability, their sustainability, and political merchantabilities), it is necessary to take a more holistic approach which takes account of historical, cultural and environmental factors. This is illustrated by the case of Nauru.
Pacific Island Countries; In Search of a Trade Strategy
RePEc: Research Papers in Economics, 2014
This paper examines the role of international trade for economic prosperity in Pacific island countries (PICs), discusses their comparative advantage, and explores the potential for trade, and tourism in particular, to serve as a locomotive for inclusive economic growth. We find the trade performance in PICs has been generally weak over the past decade, with the exception of resource-rich countries. Small country size and remoteness from global economic centers may have contributed to this relatively poor performance. Using the gravity models to analyze the determinants of merchandise trade and tourism in PICs, we find tourism in these countries faces more favorable conditions for growth than goods exports. Further, we place our analysis in the context of the eastward shift of global economic gravity, focusing on emerging Asia as a source of demand for resource-based goods and services. We argue that the emergence of Asia as a dynamic global economic region presents PICs with an unprecedented opportunity to develop
SMALL ISLANDS' QUEST FOR ECONOMIC DEVELOPMENT
Asia-Pacific Development Journal, 2003
Using time series data, the paper analyses the economic structure of island countries. The results are illustrated using five case studies. It is demonstrated that countries pursuing strategies based on service industries or exports of light manufactures have been more successful in attaining development objectives. This success has been translated into improved welfare for the populations of these countries. In contrast, a promotion of agriculture and remittances has tended to have a negative effect on development and on levels of welfare of the relevant island countries. Development economists have been mainly preoccupied with trying to explain why large countries with abundant resources (natural, economic, human, diplomatic) nevertheless remain poor. Meanwhile, some researchers have drawn attention to how several small, island States with very limited resources are pursuing their development. It has been seen that a number of small island countries have somehow succeeded in achieving relatively high standards of living, as evidenced by relatively high average per capita incomes, sustained levels of economic growth and a high ranking on the human development index 1. Yet, it is also true that some other small island states-Tuvalu, Kiribati, Cape Verde, Comoros, Samoa, Vanuatu, Solomon Islands, Sao Tome and Principe, and Maldives-are included among the least developed countries (LDCs). It is also the case that small island countries on account of their geographic remoteness are considered unimportant economic actors and have therefore not merited significant attention by economists. This paper is an attempt to an improved understanding of the economic problems of small island development by seeking to explore the varying approaches and mechanics of development pursued by small states and the results achieved. It does so by resorting to a comparative case study approach. The approaches to