Presentation given at the meeting on 'Sustaining development in small states in a turbulent global economy", Commonwealth Secretariat, Marlborough House, London, 2009.
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Diversifcation through innovation: The case for small island developing states
1. Diversification through Innovation:
The Case for Small Island Developing
States
Commonwealth Secretariat conference
Sustaining Development In Small States In A Turbulent
Global Economy
London, July 2009
Dr. Keith Nurse
Director
Shridath Ramphal Centre for International Trade Law, Policy & Services
University of the West Indies, Barbados
keithnurse@mac.com
2. Outline of Presentation
ï§ Global Crises in Perspective
ï§ The Economic & Diversification
Performance of SIDS
ï§ Innovation Performance in SIDS
ï§ Diversification and Innovation Options
3. How the Rich got Rich âŠand Why
the Poor stay Poor (Reinert 2007)
Poor countries specialize in activities that have one or
more of the following three characteristics:
(a) they are subject to diminishing rather than increasing returns,
(b) they are either devoid of learning potential; and/or
(c) the fruits of learning rather than producing local wealth are
passed on to their customers in the rich countries in the form of
lower prices.
4. Prescription from Lewis in response
to global economic slowdown
ï§ Sell more non-traditional exports to the core
economies;
ï§ Become individually more self-sufficient, or;
ï§ Sell more to each other (1978: 45).
âthe long-run engine of growth is technological
changeâ and not trade âexcept in the initial period
of laying development foundations.â (1978, 245)
5. Global Crises, Cascading Fragilities and
Deglobalization
Goods Trade
âąExports
D âąImports
E âąFood & Energy
ï§ Global financial meltdown
G
ï§ Global economic crisis L
Trade in Services
âąTourism & travel
ï§ Peak oil O
âąFinancial
B
ï§ Food prices A
âąCreative & ICTs
ï§ Climate change policies L Migration
I
ï§ Housing crisis Z
âąRemittances
âąBrain circulation
ï§ International terrorism A âąDiasporic exports
T âąDiasporic tourism
ï§ Global health pandemics I
O External financing
N âąFDI
âąDebt
âąODA
9. Import Replacement
ï§ Invest in renewable energy alternatives (e.g. wind, solar,
geothermal, biofuels, etc.):
ï§ Target renewables for fiscal support/incentives as well as
development assistance
ï§ Liberalize imports in environmental goods & services
ï§ Reduce the food import bill and improve health security through
investments that generates new opportunities for agro-
processing, pharmaceuticals, nutriceuticals, etc.
10. Value Accumulation
ï§ The tourism economy through diversification of markets:
â regional and diasporic tourism) and products (e.g. heritage
and festival tourism).
â Innovation in products and services (e.g. eTourism,
destination management systems, IP Branding).
ï§ In the context of a global financial and economic crisis (e.g.
declining FDI, ODA, etc.) SIDS need to deepen relations with
diasporic communities:
â Diversify from Mode IV to Mode I - III
â Diasporic investment, brain circulation, return migration,
diasporic exports, diasporic tourism
11. Policies for Economic DiversiïŹcation
(Rodrik 2005)
1. Provide incentives and subsidies only for ânewâ activities.
2. Establish clear benchmarks and criteria for success and failure
of subsidized projects.
3. Build in automatic sunset clause for subsidies.
4. Target economic activities (technology transfer or adoption,
training, and so on), not industrial sectors.
5. Subsidize only activities that have clear potential to provide
spillovers and demonstration effects.
6. Vest the authority for carrying out industrial policies in agencies
with demonstrated competence.
12. Policies for Economic DiversiïŹcation
(Rodrik 2005)
7. Make sure agencies are monitored closely by a âprincipalâ who
has a clear stake in the outcomes and has political authority at
the highest level.
8. Make sure implementing agencies maintain channels of
communication with the private sector.
9. Understand that even under âoptimalâ industrial policies âpicking
losersâ will sometimes occur.
10. Endow promotion activities with the capacity to renew
themselves, so that the cycle of discovery can become an
ongoing one.