Growth Strategies and Diversification in the Pacific Islands Countries

ABSTRACT

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 expansion required in the tourism sector to meaningfully lift growth, we consider the benefits of an alternative growth strategy based on diversification. We identify diversification episodes in 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 PICs by diagnosing the binding constraints to their economic expansion and working around these limitations.