Structural change versus economic inertia

Abstract

Structural change is critical to the growth process as it helps ensure that an economy?s resources are allocated to their most productive use. Yet such change can be difficult to achieve and even be resisted by governments. Differences in labour productivity among the Pacific island economies are linked to their success or lack thereof in achieving structural change. Those that have achieved the greatest change are also the highest income countries. At the other extreme, economic inertia is evident in the agriculture, forestry and fishing economies of Papua New Guinea, Solomon Islands, Kiribati and Vanuatu. These countries are yet to demonstrate the policy and institutional capacity to achieve structural change. Strains of economic inertia are also evident in the Fiji Islands, Marshall Islands and the Federated States of Micronesia. Samoa, Tuvalu and Tonga have achieved more progress; although in Tonga?s case much of this was achieved some decades ago.