Diversification through Innovation:The Case for Small Island Developing
States
Commonwealth Secretariat conferenceSustaining Development In Small States In A Turbulent
Global EconomyLondon, July 2009Dr. Keith Nurse
DirectorShridath Ramphal Centre for International Trade Law, Policy & Services
University of the West Indies, [email protected]
Outline of Presentation
Global Crises in Perspective The Economic & Diversification
Performance of SIDS Innovation Performance in SIDS Diversification and Innovation Options
How the Rich got Rich …and Whythe Poor stay Poor (Reinert 2007)
Poor countries specialize in activities that have one ormore 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 arepassed on to their customers in the rich countries in the form oflower prices.
Prescription from Lewis in responseto global economic slowdown
Sell more non-traditional exports to the coreeconomies;
Become individually more self-sufficient, or; Sell more to each other (1978: 45).
“the long-run engine of growth is technologicalchange” and not trade “except in the initial periodof laying development foundations.” (1978, 245)
Global Crises, Cascading Fragilities andDeglobalization
Global financial meltdown Global economic crisis Peak oil Food prices Climate change policies Housing crisis International terrorism Global health pandemics
DEGLOBALIZATION
Goods Trade•Exports•Imports•Food & Energy
Migration•Remittances•Brain circulation•Diasporic exports•Diasporic tourism
Trade in Services•Tourism & travel•Financial•Creative & ICTs
External financing•FDI•Debt•ODA
Source:UNCTADHandbookofSta7s7cs2008
Source:WorldEconomic&SocialSurvey2008
Patent Registration in the US,1965 - 2006(source: USPTO 2008)
Import Replacement Invest in renewable energy alternatives (e.g. wind, solar,
geothermal, biofuels, etc.): Target renewables for fiscal support/incentives as well as
development assistance Liberalize imports in environmental goods & services
Reduce the food import bill and improve health security throughinvestments that generates new opportunities for agro-processing, pharmaceuticals, nutriceuticals, etc.
Value Accumulation The tourism economy through diversification of markets:
– regional and diasporic tourism) and products (e.g. heritageand festival tourism).
– Innovation in products and services (e.g. eTourism,destination management systems, IP Branding).
In the context of a global financial and economic crisis (e.g.declining FDI, ODA, etc.) SIDS need to deepen relations withdiasporic communities:– Diversify from Mode IV to Mode I - III– Diasporic investment, brain circulation, return migration,
diasporic exports, diasporic tourism
Policies for Economic Diversification(Rodrik 2005)
1. Provide incentives and subsidies only for “new” 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.
Policies for Economic Diversification(Rodrik 2005)
7. Make sure agencies are monitored closely by a “principal” whohas a clear stake in the outcomes and has political authority atthe highest level.
8. Make sure implementing agencies maintain channels ofcommunication with the private sector.
9. Understand that even under “optimal” industrial policies “pickinglosers” will sometimes occur.
10. Endow promotion activities with the capacity to renewthemselves, so that the cycle of discovery can become anongoing one.