Growth Strategies and Diversification in the Pacific Islands Countries

We examine growth strategies for the Pacific Island Countries (PICs) focusing on the role of tourism and diversification. First, we quantify the contribution of tourism to growth using panel regressions and we compute how much additional tourism would be needed for PICs to sustain comparators’ growth rates. Given the sizable scaling ups in tourism required, we consider the benefits of an alternative growth strategy based on diversification. We identify diversification episodes in the PICs and quantify their benefits using the synthetic control method. Such episodes have had mixed results for PICs. Finally, we outline a framework for designing growth strategies in the PICs, based on diagnosing the binding constraints to their economic expansion and working around these limitations.