Diversifcation through innovation: The case for small island developing states


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Presentation given at the meeting on 'Sustaining development in small states in a turbulent global economy", Commonwealth Secretariat, Marlborough House, London, 2009.

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Diversifcation through innovation: The case for small island developing states

  1. 1. Diversification through Innovation: The Case for Small Island Developing States Commonwealth Secretariat conference Sustaining Development In Small States In A Turbulent Global Economy London, July 2009 Dr. Keith Nurse Director Shridath Ramphal Centre for International Trade Law, Policy & Services University of the West Indies, Barbados keithnurse@mac.com
  2. 2. Outline of Presentation  Global Crises in Perspective  The Economic & Diversification Performance of SIDS  Innovation Performance in SIDS  Diversification and Innovation Options
  3. 3. How the Rich got Rich …and Why the Poor stay Poor (Reinert 2007) Poor countries specialize in activities that have one or more 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 are passed on to their customers in the rich countries in the form of lower prices.
  4. 4. Prescription from Lewis in response to global economic slowdown  Sell more non-traditional exports to the core economies;  Become individually more self-sufficient, or;  Sell more to each other (1978: 45). “the long-run engine of growth is technological change” and not trade “except in the initial period of laying development foundations.” (1978, 245)
  5. 5. Global Crises, Cascading Fragilities and Deglobalization Goods Trade •Exports D •Imports E •Food & Energy  Global financial meltdown G  Global economic crisis L Trade in Services •Tourism & travel  Peak oil O •Financial B  Food prices A •Creative & ICTs  Climate change policies L Migration I  Housing crisis Z •Remittances •Brain circulation  International terrorism A •Diasporic exports T •Diasporic tourism  Global health pandemics I O External financing N •FDI •Debt •ODA
  6. 6. Source:
  7. 7. Source:
  8. 8. Patent Registration in the US, 1965 - 2006 (source: USPTO 2008)
  9. 9. 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 through investments that generates new opportunities for agro- processing, pharmaceuticals, nutriceuticals, etc.
  10. 10. Value Accumulation  The tourism economy through diversification of markets: – regional and diasporic tourism) and products (e.g. heritage and 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 with diasporic communities: – Diversify from Mode IV to Mode I - III – Diasporic investment, brain circulation, return migration, diasporic exports, diasporic tourism
  11. 11. 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.
  12. 12. Policies for Economic Diversification (Rodrik 2005) 7. Make sure agencies are monitored closely by a “principal” who has a clear stake in the outcomes and has political authority at the highest level. 8. Make sure implementing agencies maintain channels of communication with the private sector. 9. Understand that even under “optimal” industrial policies “picking losers” will sometimes occur. 10. Endow promotion activities with the capacity to renew themselves, so that the cycle of discovery can become an ongoing one.