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Pacific Islands Development in Long-run Perspective

Geoff BertramInstitute of Policy Studies

February 2011

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Top-down versus bottom-up

• Seen from above, ‘resilience’ is a set of qualities that aid donors want island economies and societies to exhibit – outcomes to be purchased.

• Seen from below, ‘resilience’ (including adaptability, flexibility, opportunism) has always been the fundamental long-run characteristic of Pacific Island communities, from way back before European contact.

• Quite a few metropolitan policymakers are still preoccupied with – blocking some of the consequences of bottom-up resilience,– denying elements of its economic logic, and– imposing preconceived (top-down) views of what resilience looks like or should look like

• A recurrent failing of aid agencies and metropolitan governments is to impose a particular top-down conception of what it means to “develop”, and to make aid conditional upon a shadow-play of compliance with this vision by the recipients.

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To get a sense of how bottom-up resilience works, evidence-based analysis is a good place to start

• Rather than telling island peoples or states how to “develop sustainably”, or what to develop, watch what they have actually done within the limits of the external constraints placed upon them

• One early casualty would be the degree of emphasis and expectations placed by large-country analysts on commodity trade and trade agreements. Export-led growth has had a bad century in the Pacific, and the next century’s prospects hinge more on regulatory capacity than free-trade treaties

• Another casualty would be simplistic claims about the benefits of shifting resources from the public sector to the private sector (getting the public sector working more effectively is another matter)

• Another would be several core assumptions in mainstream development thinking about decolonisation and the virtues of sovereign statehood

• My own work has tended to focus on gathering comparative numbers and using them to chart the big trends in islander development – not only in the Pacific but worldwide.

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“Sustainable development” is a term badly in need of careful unpacking.

• Whenever anyone recommends it or appeals to it they should be asked to explain what exactly is “developing”, what it means to “develop”, what mechanism is to do the “sustaining”, whether this mechanism is politically acceptable or not, and which structural options are being ruled out by use of the term.

• Unless very specific content is added, the words are mere rhetoric which confuse and conceal.

• From my perspective, what is to be developed is the material welfare, life chances and cultural identity of each people, seen holistically as a people without regard to national borders unless and until those borders clearly have become effective dividing lines within the people.

• Development is sustainable so long as material welfare, life chances and cultural cohesion are maintained or enhanced through time without running up large collective balance-sheet liabilities that at some later stage are apt to prove destructive.

• This means that certain indicators often appealed to in the name of “sustainability” are in fact often irrelevant – especially “trade imbalance”, “capital outflow”, “brain drain”, and that ugly expression, “aid dependence”.

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Conceptually one ought to be thinking of “viability” and “sustainability” in terms of socioeconomic units – often

transnational units - rather than “national” ones.

• Much of the ‘modern sector’ of any Pacific island people with migration outlets will lie offshore, inhabited by the diaspora of entrepreneurs and wage-workers which controls a large share of the financial and human capital of the people as a whole.

• Remittances form a direct cashflow link between the diaspora and the home population, but other links are equally important for long-run growth – especially patterns of return migration, back-and-forth visiting, communication via media channels, and accumulation of financial assets in metropolitan banks and share registers.

• National-accounts aggregates prepared for the home-resident population in isolation not only ignore much of the actual (but offshore) modern sector; they also miss the degree of success in preserving non-material wealth in the form of culture and human capital while raising material welfare.

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• Living standards need not depend upon production in the same locality; they can be fully “sustained” from sources that look “external” to the national-accounts statistician, so long as those sources are firmly internal to the transnational ethnic unit.

• The home-resident pole’s living standards become unsustainable only if national borders are used to blockade and divide the people as a whole. The ethnic unit should be accounted on the same P&L and balance-sheet basis as any transnational enterprise.

• The most obvious gap in the Stiglitz-Sen report on revising the traditional national-accounting framework is that they focus on measuring happiness within geographically-bounded territories rather than for peoples located across multiple territories.

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A paradox for Adam Smith and Karl Marx: “Unproductive” Capital is Productive;

“Productive” Capital is Unproductive

• Infrastructure provided direct use values: schools, hospitals, roads, reef passages, ports, airports, water supply, radio links, government buildings …..

• Development-project-related capital was moribund, loss-making, often idle…

• The large weight of the public sector in onshore economies is therefore logical, as is the tendency for the private sector to be located offshore in the diaspora, hence off-the-radar in traditional national accounts

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Migration-adjusted national income accounting (bringing diasporas into the statistics) is in its infancy and is a rich area for empirical

macroeconomic research

• Kenichi Ueda, Kenichi, 2002, Implications of Migration on Income and Welfare of Nationals, International Monetary Fund Working Paper No. 02/215

• Roberto Cardarelli and Kenichi Ueda, “Domestic and Global Perspectives of Migration to the United States”, in United States: Selected Issues, IMF Country Report 04/228, July 2004, pp.16-29.

• Michael Clemens and Lant Pritchett, “Income per Natural: Measuring Development for People Rather than Places”, Population and Development Review 34(3): 395-434, September 2008

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Outline of the rest of the paper• How imports are funded (more or less sustainably….)

• Importance of remittances

• How population (including labour, human capital, and entrepreneurship) is allocated across geographic space => island peoples, their societies and economies, are transnational in scope

• Sovereignty is like a tax which places a deadweight burden on prosperity => some sacrifices of sovereignty can have economic and social payoffs

• Ignoring or downplaying the development experience and performance of sub-national jurisdictions is a big analytical mistake

• Some long-run charts on New Zealand’s relationships with the Pacific

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In terms of the traditional national-accounts approach, imports rule

• The ability to fund imports of goods and services is the key means to the end of sustaining private and public consumption, and hence material welfare, within the geographical territory of an island ‘state’ (including SNJs)

• Getting the imports at least cost (in terms of leisure and social capital) is the strategic game. There are several ways to work on getting the constraint relaxed in practice. Commodity exports are way down the list, for good reason

• The place to start is with the relationship of imports to well-being, and the identification of the components of well-being that are not sustainable by imports.

• Much of the latter has to do with “the village”, its way of life and the problem of how important it is to hold young people in the village economy, and for players in the village to have cash opportunities for sale of products outside.

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Imports and GNI per capita

1

10

100

1,000

10,000

100,000

1.0 10.0 100.0 1,000.0 10,000.0 100,000.0

Imports of goods and services per capita

GN

I/GD

P pe

r cap

ita

US Virgin Islands

Imports are fundamental to onshore living standards but have to be paid for:

Asserted direction of

causality

80 small islands worldwide

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Back in 1984 Ray Watters and I discovered the “jaws effect” in some small Pacific islands

Imports had become disconnected from merchandise exports as the colonial era came

to an end

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Cook Islands trade balance

Source: Geoff Bertram, ‘Sustainability, Aid, and Material Welfare in Small Pacific Island Economies, 1900-1990’, World Development, 21,2 (February 1993), p.250..

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Niue trade balance


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Tokelau trade balance


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Tuvalu trade balance


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Kiribati trade balance


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For us the question this raised was: how was the observed gap being funded

• Not by overseas borrowing – the Pacific has not been a debt-crisis-prone region (the Cook Islands 1988-1996 was the exception to prove the rule)

• Only in a few cases did services exports pick up the funding burden

• In the Pacific, a strong “commercial balance” signals either extreme poverty (PNG, Vanuatu) or special cases (Fiji, American Samoa)

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How could the trade “jaws” be sustainable without borrowing to fill the gaps?

• Our answer in 1984 was MIRAB

• Two stock-flow relationships were the locomotives of these economies:

– MIR: Stock of overseas migrants => flow of remittances

– AB: Flow of aid => stock of public sector employees (“bureaucrats”)

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Goods and

Services

Balances of

Seventeen

Pacific Island

Economies

1975-2004

FijiFiji

Fiji

Fiji

Fiji

Fiji

PNG

PNG

PNG

PNG

PNGPNG

Solomons Solomons

SolomonsSolomons

Solomons

Solomons

Tonga

Tonga

TongaTonga

Tonga

TongaSamoa Samoa

Samoa

Samoa

Samoa Samoa

Vanuatu

Vanuatu

Vanuatu

Vanuatu

Vanuatu

Kiribati Kiribati

Kiribati

Kiribati

Marshall Islands

Marshall IslandsMarshall Islands

Marshall Islands

FSMFSM

FSM FSM

Tuvalu

TuvaluTuvalu

Tuvalu

Tuvalu

Hawaii Hawaii

American Samoa

American SamoaAmerican SamoaAmerican SamoaAmerican Samoa

Fr PolynesiaFr Polynesia

Fr Polynesia

Fr Polynesia

Guam

Guam GuamGuam

Cook Islands Cook IslandsCook Islands

Cook Islands

Cook Islands

Cook Islands

Palau

Palau

Fr Polynesia

-160

-140

-120

-100

-80

-60

-40

-20

0

20

40

60

1975-79 1980-84 1985-89 1990-94 1995-99 2000-04

% o

f im

ports

Source: Geoff Bertram, “Economy”, in Rapaport, M. (ed) The Pacific Islands: Environment and Society, 2nd ed 2011.

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• Rule 1: don’t get hypnotised by the trade balance (this is the mistake most outside analysts instantly fall into).

• Commercial trade deficits are common and sustained, therefore (to date at least) sustainable.

• None of the countries in that diagram has run up unsustainable international debt – instead, they have sustained their import capacity by means other than conventional exports.

• But it’s true there is a funding constraint driving the market solutions we observe

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There’s a solid number of MIRAB cases identified in the literature now

• Cook and Kirkpatrick (1998): FSM• Poirine (1998): French Polynesia, US Virgin Is,

Guadeloupe, Martinique, St Perre et Miquelon, Mayotte

• Bertram (1999): Samoa, Tonga, Easter Island, Palau, Marianas

• Royle (2001): St Helena, St Kitts, and the Marshall Islands

• McElroy & Morris (2002): Cape Verde, Comoros, Sao Tome & Principe

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But MIRAB is on;y one of a rich menu of strategic options: sustainable, but optimal in only a few cases

• Two dramatic success stories of transition out of MIRAB status are the Cayman Islands and the Cook Islands

• Consider the Cook Islands case by extending my earlier jaws chart:

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189218981904191019161922192819341940194619521958196419701976198219881994200020060.0

50.0

100.0

150.0

200.0

250.0

Cook Islands merchandise trade, real values at 2000 NZ prices

Merchandise importsMerchandise exports

NZD

mill

ion

defla

ted

to 2

000

price

s

25

19801984

19881992

19962000

20042008

0.0

50.0

100.0

150.0

200.0

250.0

Cook Islands: Financing of imports

TourismRemittancesAid Merchandise importsMerchandise exports

NZD

mill

ion

defla

ted

to 2

000

price

s

26

19801984

19881992

19962000

20042008

0.0

50.0

100.0

150.0

200.0

250.0



NZD

mill

ion

defla

ted

to 2

000

price

s

27

19801984

19881992

19962000

20042008

0.0

50.0

100.0

150.0

200.0

250.0



NZD

mill

ion

defla

ted

to 2

000

price

s

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Looking around the world there are numerous case studies of island economies which do not exhibit MIRAB characteristics.

• Baldacchino (2004) and PROFIT. Five dimensions of local jurisdictional autonomy:– P (people considerations): powers over movement of persons (including issues of

citizenship, residence and employment rights);– R (Resource management): powers over environmental policy, especially

regarding natural resources;– O (overseas engagement and ultra-national recognition):the exercise of “para-

diplomacy” by sub-national governments acting as though they are sovereign states

– FI : finance, insurance and taxation;– T (transportation): powers over access by air and sea.

• McElroy (2004) and SITEs: “small, tourist-dependent islands represent [an analytically] useful cluster or special case of island development.”

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By 2009 Godfrey Baldacchino and I had the following map of the world’s islands in terms of how they paid their way*:

* From G. Baldacchino and G. Bertram, ‘The beak of the finch: insights into the economic development of small economies’, The Round Table, 98, 401 (April 2009), pp.141–160.

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MIRAB:

Cape VerdeComorosDominicaHaitiKiribatiMarshall IslandsMayotteMicronesiaMontserratSamoaSao Tome & PrincipeSt Pierre et MiquelonTokelauTongaTuvaluWallis & Futuna

SITE:

Bali, Bonaire, Canary Islands,Cook Islands, Curacao, Guam,Hawaii, St Maarten, Turks & Caicos

PROFITAmerican Samoa, Bahrain, Falkland Islands, Faroe Islands, Guernsey, Iceland, Isle of Man, Jersey, Mauritius

PROFITs

MIRAB/SITE:

French Polynesia, Guadeloupe, Martinique,Palau, Pitcairn, Reunion

SITE/PROFIT

AnguillaAntigua & BarbudaArubaBahamasBarbadosBermudaBritish Virgin IslandsCayman IslandsCyprusFijiGrenadaMaldivesMaltaMarianasSeychellesSt Kitts & NevisSt LuciaSt Vincent & GrenadinesUS Virgin IslandsVanuatu

MIRAB/PROFIT:

GreenlandNauruNew CaledoniaSolomon IslandsSt Helena

MIRABS

SITES

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• What’s special about small-island speciation is that islands make evolutionary switches around the diagram

• Niches are partly exogenous and partly endogenous (created by strategic behaviour)

• Selection is partly by chance, but largely by collective response to incentives

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Sustaining imports requires some source of funding, but not necessarily “trade balance” with exports ramped up to equal

imports.

• Balance-of-payments current account equilibrium and reasonable living standards can be sustained with very low commodity exports, as Tuvalu dramatically illustrates.

• Diagnosis requires that the funding flows be

identified, quantified, and viewed from a dynamic long-run perspective. A recent attempt at doing this is Bertram and Poirine (2007)

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Bernard Poirine and I did a number-crunching exercise for 71 island economies to produce a more

detailed story*

Conclusion: there are many ways to play the game depending what hand has been dealt….

(arrows in each diagram identify Pacific economies)

‘Island Political Economy’, Chapter 10 in Baldacchino, G. (ed.) A World of Islands, Institute of Island Studies, University of Prince Edward Island, 2007, pp.325-377.

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-200-150-100-50

050

100150200250300

Nor

ther

n M

aria

nas

Bah

rain

US

Virg

in Is

land

sM

alta

Aru

baFa

lkla

nd Is

land

s (Is

las

Nau

ruFa

roe

Isla

nds

Solo

mon

Isla

nds

Icel

and

Am

eric

an S

amoa

% o

f tot

al im

port

s

ResidualAidRemittancesTourismMerchandise exports

Small Island Export Economies at 2000

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-300

-200

-100

0

100

200

300

400

Turk

s an

d C

aico

s Is

land

sG

uam

Coo

k Is

land

sC

aym

an Is

land

sM

ayot

teB

aham

as, T

heSa

int L

ucia

Brit

ish

Virg

in Is

land

sA

ntig

ua a

nd B

arbu

daPa

lau

Ang

uilla

Mal

dive

s

% o

f tot

al im

ports Residual

Aid

Remittances

MerchandiseexportsTourism

Small-island SITEs at 2000

36

-20

0

20

40

60

80

100

120

Tong

a

Sam

oa

Com

oros

Tuva

lu

Cap

e V

erde

% o

f tot

al im

port

s

ResidualMerchandise exportsTourismAidRemittances

Fully evolved MIRABs at 2000

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Small Aid-led island economies at 2000

-800

-600

-400

-200

0

200

400

600

800

Toke

lau

Niu

eTi

mor

L'E

ste

Sao

Tom

e &

Prin

cipe

Mar

shal

l Isl

ands

Wal

lis a

nd F

utun

aM

onts

erra

tG

reen

land

Mic

rone

sia

Dom

inic

aSa

int P

ierre

& M

ique

lon

Reu

nion

Fren

ch P

olyn

esia

Mar

tiniq

ueG

uade

loup

e

% o

f tot

al im

port

s

Residual

Remittances

Tourism

Merchandise exports

Aid

38

-40

-20

0

20

40

60

80

100

120

140

Ber

mud

a

Kiri

bati

Sain

t Kitt

s and

Nev

is Cyp

rus

Van

uatu

% o

f tot

al im

port

s

Remittances

Merchandise exports

Aid

Tourism

Residual

‘Residual-led” (= offshore finance) cases at 2000

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BERCAYBVI

CYPNTAANG

ANTSTKSTVBAH

VAN

HAW

GUM

TURBAR

NAU

TRI

BAHPUEMLTUSVNZLARUSINICE

GRN

NCA

FALFAR

MARFRP

SPM

REU

NIU

FSM

TOKMAY

RMI

GUA

CAN

STLPALCKI

GRE

MAL

CUB

JAMFIJ

MAUSEY

NMI

KIR

HAI

DOMSTP

TUV

TGA

WAL

SAM

COM

MON

MDGSOL

SRIDMR

AMS

STH

0.00

0.20

0.40

0.60

0.80

1.00

1.20

1.40

1.60

1.80

2.00In

dex

of in

com

e an

d lif

e ex

pect

ancy

High-value

exports

Moderate-impact tourism

Offshore finance

plus tourism

High-impact tourism

Geostrategic rent with exports

Geostrategic aid

Tourism plus

exports

Primary exports with aid and/or

remittance support

Non-geostr-ategic

MIRABs

TUV

Bertram and Poirine 2007: 361

Nine strategic orientations: welfare outcomes

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Remittances are not everything, but they’re fundamental to some Pacific economies

• Samoa: – the flow of remittances captured by the official statistical agencies is currently around US$50

million (NZ$80 million) a year. – Allowing for informal remittances not appearing in the statistics, the true total flow from New

Zealand to Samoa probably lies between $100 million and $150 million a year– Compare this with New Zealand imports from Samoa of $3-4 million and bilateral aid of $8-9

million a year. Trade and aid, in other words, play only a trivial role in economic relationships between New Zealand and Samoa, while Samoans themselves operate the really important linkage.

• Tonga: – Estimated formal remittances from Tongans in New Zealand are over US$30 million (NZ$50

million), suggesting that the total (including unrecorded transfers) is likely to be in the range $80-100 million a year,

– Compare this with New Zealand’s imports from Tonga of around $2 million and aid of $17 million in 2008. Like Samoa, Tonga’s main economic link with New Zealand currently is via remittances.

• New Zealand’s balance of payments statistics provide no estimates of remittance flows! (The Asian Development Bank has called attention to the gap.)

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How population (including labour, human capital, and entrepreneurship) is allocated across geographic space

• Island peoples form unified entities spanning transnational space

• Diasporas are integral parts of many island economies - hence “modern sectors”, “private sectors”, “skilled employment”, etc, occur within the community-defined economy but outside the territorially-delimited “nation”.

• The geographic allocation of resources represents a dynamic equilibrium

• In the labour market, a fundamental piece of information is the income level of the diaspora relative to the income level of the home population. Once corrections have been made for frictional variables, age, level of education and so on, the income relativity between the diaspora and the home labour force should exhibit a threshold differential at which migration accelerates/decelerates.

• In a migratory equilibrium, the income relativity sits exactly on this threshold. So we should be in a position to estimate income levels of people from a uniform ethnic group across transnational space, and hence to characterise the equilibrium. [For methodological pointers see the work of George Borjas – e.g. Imperfect Substitution between Immigrants and Natives: A Reappraisal George J. Borjas, Jeffrey Grogger, and Gordon H. Hanson NBER Working Paper No. 13887, March 2008]

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• In the labour market, a fundamental piece of information is the income level of the diaspora relative to the income level of the home population.

• Once corrections have been made for frictional variables, age, level of education and so on, the income relativity between the diaspora and the home labour force should exhibit a threshold differential at which migration accelerates/decelerates.

• In a migratory equilibrium, the income relativity sits exactly on this threshold. We should now be in a position to estimate income levels of people from a uniform ethnic group across transnational space, and hence to characterise the equilibrium.

• For some methodological pointers see the work of Borjas - e.g. Imperfect Substitution between Immigrants and Natives: A Reappraisal George J. Borjas, Jeffrey Grogger, and Gordon H. Hanson NBER Working Paper No. 13887, March 2008

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Figure 1 Samoan Community by Place of Residence

0

100,000

200,000

300,000

400,000

500,000

600,00019

0619

1119

1619

2119

2619

3619

4119

4519

5119

5619

6119

6619

7119

7619

8119

8619

9119

9620

0120

06

Samoans resident elsewhere inthe world

Other/no detailed data, makingup the New Zealand-residenttotalEthnicSamoan residents of NewZealand born in New Zealand

Ethnic Samoan residents ofNew Zealand born in PacificIslandsResident population in Samoa

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Figure 2 Cook Islands Maori Community by Place of Residence

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

100,00019

0619

1119

1619

2119

2619

3619

4119

4519

5119

5619

6119

6619

7119

7619

8119

8619

9119

9620

0120

06

Cook Islands migrantselsewhere in the world

Other/no detailed data, makingup the New Zealand-residenttotalEthnic Cook Island Maoriresidents of New Zealand bornin New ZealandEthnic Cook Island Maoriresidents of New Zealand bornin Pacific IslandsResident population in the CookIslands

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Figure 3: Tongan Community by Place of Residence

0

50,000

100,000

150,000

200,000

250,000

1906

1911

1916

1921

1926

1936

1941

1945

1951

1956

1961

1966

1971

1976

1981

1986

1991

1996

2001

2006

Tongan migrants elsewhere inthe world

Other/no detailed data, makingup the New Zealand-residenttotal

Ethnic Tongan residents ofNew Zealand born in NewZealand

Ethnic Tongan residents ofNew Zealand born in PacificIslands

Resident population in Tonga

Hypothesised “missing migrants”

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Figure 4: Niuean Community by Place of Residence

0

5,000

10,000

15,000

20,000

25,000

30,000

1906

1911

1916

1921

1926

1936

1941

1945

1951

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1961

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1971

1976

1981

1986

1991

1996

2001

2006

Niuean migrants elsewhere inthe world

Other/no detailed data, makingup the New Zealand-residenttotalEthnic Niuean residents ofNew Zealand born in NewZealandEthnic Niuean residents ofNew Zealand born in PacificIslandsResident population in Niue

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Figure 5: Tokelauan Community by Place of Residence

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

1906

1911

1916

1921

1926

1936

1941

1945

1951

1956

1961

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1971

1976

1981

1986

1991

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Tokelauan migrants elsewherein the world

Other/no detailed data, makingup the New Zealand-residenttotalEthnicTokelauan residents ofNew Zealand born in NewZealandEthnic Tokelauan residents ofNew Zealand born in PacificIslandsResident population in Tokelau

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Figure 6: Tuvaluan Community by Place of Residence

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,00019

0619

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6619

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Tuvalu-born migrantselsewhere in the world

Other/no detailed data, makingup the New Zealand-residenttotal

Ethnic Tuvaluan residents ofNew Zealand born in NewZealand

Ethnic Tuvaluan residents ofNew Zealand born in PacificIslands

Temporary migrants: seafarers,students, phsophate workers

Resident population in Tuvalu

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Host Countries of the Pacific-Born Diaspora

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

Others

GUM

ASM

PHL

NCL

CAN

AUS

NZL

USA

USA 196,838

Australia 99,211

Other countries185,290

New Zealand 117,156

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Figure 17: The Migration Transition in Seven Island Communities

Proportion of Total Community Living in Home Island(s)

0102030405060708090

10019

06

1916

1926

1941

1951

1961

1971

1981

1991

2001

% o

f tot

al

SamoaTongaCook IslandsNiueTokelauFijiTuvalu

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Proportion of Total Community Living in New Zealand

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

90.019

06

1916

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1991

2001

% o

f tot

al

SamoaTongaCook IslandsNiueTokelauFijiTuvalu

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“Carrying capacity” limits are psychological rather than physical but appear genuine.

• So long as there is a migration outlet available, Pacific islands’ home population has levelled off at roughly the pre-contact level (mid-eighteenth century) and population growth has been exported.

• Niue and Tokelau have depopulated in response mainly to ill-advised New Zealand policies and attitudes regarding security of citizenship and unwillingness to work on political/constitutional integration. [The ‘Realm of NZ’ is at last getting a better press…]

• The urgency of out-migration grew rapidly in Tuvalu from the 1980s as pre-contact population was re-established.

• Kiribati now faces an even worse Malthusian cul-de-sac, but the barriers may be beginning to break. [Here is perhaps a case for the UK to extend the boundaries of ‘citizenship’?]

• Smaller countries are better able to do “bottom-up globalisation” (John Connell’s phrase) – see Figures 8 and 9:

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0

200,

000

400,

000

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000

800,

000

1,00

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0

1,80

0,00

0

2,00

0,00

0

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

90.0

Propensity to migrate in 74 microstates with total home-born population under 1.8 million (Botswana and less)

Total Population Including Diaspora

Perc

ent i

n di

aspo

ra

Luxembourg

GuyanaTimor L'Este

Trinidad and Tobago

Montserrat

PitcairnNiue

Tokelau

Cook Islands

Suriname

Botswana

American SamoaNetherlands Antilles

CyprusFiji

Cape VerdeMalta

Barbados

Mauritius

Comoros (!!!)

SamoaGuam

Size matters

54

Sovereignty is a tax on material living standards• Small island countries that are sovereign, independent nation states tend

to be less well-off than sub-national island jurisdictions (SNIJs)

• GDP per Capita in the Pacific by Political Status, US dollars, PPP adjusted, c2000

GDP $ per

capita

Sovereign 2,897Associated 4,665Integrated 26,650

Region average 7,841

55

Relationship of Real Per Capita Income of Islands and their Metropolitan Patrons, Panel Data at Five-Yearly Intervals, Log Data

5

6

7

8

9

10

11

12

8.8 9 9.2 9.4 9.6 9.8 10 10.2 10.4 10.6

Log of Metropolitan Real GDP per capita

Log

of I

slan

d R

eal G

DP

per

capi

ta

IntegratedAssociatedSovereign

Source: Geoff Bertram, “On the Convergence of Small Island Economies with their Metropolitan Patrons”, World Development 32, 2 (February 2004) pp.343-364.

56


5

6

7

8

9

10

11

12

8.8 9 9.2 9.4 9.6 9.8 10 10.2 10.4 10.6


Log

of I

slan

d R

eal G

DP

per

capi

ta



57


5

6

7

8

9

10

11

12

8.8 9 9.2 9.4 9.6 9.8 10 10.2 10.4 10.6


Log

of I

slan

d R

eal G

DP

per

capi

ta



58

Some recent academic work on sovereignty and development

• Geoff Bertram, “On the Convergence of Small Island Economies with their Metropolitan Patrons”, World Development 32, 2 (February 2004) pp.343-364.

• J.L. McElroy and K.B. Pearce, “The Advantages of Political Afiliation: Dependent and Independent Small-Island Profiles”, The Round Table 95(386): 529-539, September 2006.

• G. Baldacchino, Island Enclaves 2010; and G. Baldacchino & D. Milne, The Case for Non-sovereignty, Routledge 2009)

• Feyrer, J. & Sacerdote, B. (2009) ‘Colonialism and Modern Income: Islands as Natural Experiments’, Review of Economics and Statistics 91(2): 245-262, May.

59

Exports and Imports, New Zealand and the Pacific Islands, 1895-2005

0.00

0.20

0.40

0.60

0.80

1.00

1.20

1.40

1895 1905 1915 1925 1935 1945 1955 1965 1975 1985 1995

% o

f New

Zea

land

GDP

Exports to Pacific FOB Imports from Pacific CDV/VFD

60

Proportions of New Zealand’s Export and Import Trade Accounted for by Pacific Islands as Trading Partners

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

1895

1905

1915

1925

1935

1945

1955

1965

1975

1985

1995

2005

% o

f NZ

tota

l

Pacific share of total NZexports

Pacific share of total NZimports

61

New Zealand’s Trade Balance with the Pacific Islands, 1895-2007

-1.20

-1.00

-0.80

-0.60

-0.40

-0.20

0.00

0.20

0.40

0.60

0.80

1.00

1890 1910 1930 1950 1970 1990 2010

% o

f NZ

GD

P

62

New Zealand Imports from the Pacific Islands

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1895

-99

1900

-04

1905

-09

1910

-14

1915

-19

1920

-24

1925

-29

1930

-34

1935

-39

1940

-44

1945

-49

1950

-54

1955

-59

1960

-64

1965

-69

1970

-74

1975

-79

1980

-84

1985

-89

1990

-94

1995

-99

2000

-04

2005

-07

Shar

e of

tota

l

Other Pacific

PNG

Samoa

Cook Islands, Niue & Tokelau

Nauru, Banaba and Makatea

Fiji

63

New Zealand Aid to Pacific and Elsewhere, 1920-2008

0

0.1

0.2

0.3

0.4

0.5

0.6

1920

1925

1930

1935

1940

1945

1950

1955

1960

1965

1970

1975

1980

1985

1990

1995

2000

2005

2010

% o

f NZ

GD

P

Rest of world and multilateralPacific

64

Distribution of New Zealand Aid within the Pacific

0%

20%

40%

60%

80%

100%

1925

1930

1935

1940

1945

1950

1955

1960

1965

1970

1975

1980

1985

1990

1995

2000

2005

% o

f NZ

Aid

to P

acifi

c

Polynesia Melanesia Micronesia Regional organisations, shipping, etc

65

• Overall, from an islander perspective their historical relationships with New Zealand have been economically beneficial though marred by occasional tensions over palagi conceptions of political and economic development.

• Infrastructure and services were developed to a reasonably good standard under New Zealand rule, and have been sort-of sustained since by ongoing aid commitments.

• By opening its doors to island migrants from its territories in the 1950s and 1960s New Zealand gained a source of cheap labour while enabling islanders to access cash incomes at levels that could not have been secured at home, a genuine win-win outcome.

• By extending migration access over subsequent decades to a widening range of Pacific islanders – Tongans, Tuvaluans, and most recently Melanesians, New Zealand has cemented its role both as a good neighbour and as a development hub for the peoples of the region.

66

• The interpenetration of small-island economies with metropolitan national economies such as New Zealand means that conventional national-accounts statistics conceal rather than reveal the true developmental performance of the islander communities, dispersed as they are across several different national economies.

• Pacific islanders resident in New Zealand produce output which is simultaneously part of both New Zealand’s GDP and a key component of the collective income of their transnational ethnic groups. Pacific migrants pay income taxes and GST in New Zealand, and probably comprise 3 - 5% of the New Zealand tax base, an amount well in excess of the total value of aid and other grants from New Zealand to the islands.

• The modern sector of any Pacific island people with migration outlets will lie offshore, inhabited by the diaspora of entrepreneurs and wage-workers which controls a large share of the financial and human capital of the ethnic community as a whole.

67

• Remittances form a direct cashflow link between the diaspora and the home population, but other links are equally important for long-run growth – especially patterns of return migration, back-and-forth visiting, communication via media channels, and accumulation of financial assets in metropolitan banks and share registers.

• Migration-adjusted national income accounting is in its infancy and is a rich area for empirical macroeconomic research. National-accounts aggregates prepared for the home population in isolation not only ignore much of the actual (but offshore) modern sector; they also miss the degree of success in preserving non-material wealth in the form of culture and human capital while raising material welfare.

• Thus the time is ripe for a re-thinking of New Zealand’s policy stance towards the small islands of the region, based on acknowledgement that “sustainable development” need not mean either strong trading performance or large-scale industrial development in the islands, but can be secured by other forms of economic activity, many of which point towards an informal process of regional economic and social integration that transcends the narrow categories of national sovereignty and domestic product.