Structural Transformations in Pacific Island Countries:
Challenges and Opportunities to Eradicating Poverty
and Inequality
Neelesh Gounder
School of Economics, University of the South Pacific, Fiji
Oceania Development Network
1. Introduction
• Structural transformations are a constant feature of all
economies .
• Is the defining characteristic of the development process.
• Is both the cause and effect of economic growth.
• Usually involves significant transfer of resources from some
sectors to others in an economy.
2
1. Introduction
• Managing structural transformations are important: allow
countries to expand their economies and improve the quality
of lives of their people.
• Trace the trajectory of structural transformation in Pacific
Island countries (PICs).
• Discuss some of the challenges and opportunities of these
transformations and how it has impacted on the outcomes for
poverty reduction and inequality.
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2. Pacific Island Countries
• Identified in the developing Asia as facing disadvantages due
to size, low population, weak governance and isolation from
major markets.
• Effects of climate change, vulnerability to global food and fuel
prices, impact of natural disasters and rapid urbanization.
• Rely on transfer payments related to aid, peacekeeping
duties, sea fearers, tourism and from inflow of remittances
from migrants.
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2. Pacific Island Countries
• Growth in PICs has been weak over the last decade.
• Integration of with Australia, New Zealand, and emerging Asia
has increased over the last two decades.
• Stronger linkages with Australia and New Zealand are well
established.
• Linkages with emerging Asia, including China, have also grown
substantially, especially over the last 10 years.
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2. Pacific Island Countries
• Most PICs are heavily dependent on agricultural and tourism
sectors.
• Broadening the economic bases through private sector
development will help reduce reliance on foreign assistance.
• Inflation is always a concern in PICs; largely driven by changes
in external food and energy prices.
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3. Structural Transformation Process
• Four interrelated processes:
 Declining share of agriculture in GDP and employment.
 Rapid process of urbanization as people migrate from
rural to urban areas.
 Rise of industrial and service economy.
 Demographic transition from high to low rates of births
and deaths.
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4. PICs: Contribution to Employment
100.0
90.0
80.0
70.0
60.0
Agriculture
50.0
Industry
40.0
Services
30.0
20.0
10.0
0.0
Kiribati (2000)
Source: WDI
Marshall Islands
(1999)
PNG (2000)
Samoa (2001)
Tonga (2003)
Vanuatu (2009)
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4. PICs: Agriculture (value added as % of GDP)
45
40
35
30
25
1990
%
2000
20
2010
15
10
5
0
Pacific
Source: WDI
Fiji
Kiribati
Palau
PNG
Samoa
Solomon
Islands
Tonga
Tuvalu
Vanuatu
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4. PICs: Percent Rural Population
100
90
90
80
70
80 80
76
74
64
91
88
88
80
80
77
78
75
65
60
56
48
% 50
50
47
1970
40
40
2010
28
30
17
20
10
0
Pacific
Source: WDI
Fiji
Kiribati Marshall
Islands
Palau
PNG
Samoa
Solomon
Islands
Tonga
Tuvalu
Vanuatu
10
4. PICs: Manufacturing (value added as % of GDP)
18
16
14
12
10
1990
%
2000
8
2010
6
4
2
0
Pacific
Source: WDI
Fiji
Kiribati
Palau
PNG
Samoa
Solomon
Islands
Tonga
Tuvalu
Vanuatu
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4. PICs: Services (value added as % of GDP)
90
83
80
60
69
68
70
63
57
70
67
62
56
53
50
61
58
62
53
44
%
1990
2000
40
32
2010
30
19
20
10
0
Pacific
Source: WDI
Fiji
Kiribati
Palau
PNG
Samoa
Solomon
Islands
Tonga
Tuvalu
Vanuatu
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5. Challenges and Opportunities
• Agriculture
 Declining share in GDP.
 Majority of rural population depend on agriculture.
 Enhancing the performance of the agriculture sector is central
to achieving sustained poverty reduction.
 Appropriate policies can enhance agriculture towards structural
transformation and make a contribution to poverty reduction.
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5. Challenges and Opportunities
 Link to Poverty Reduction (evidence from better
performing developing countries):
 Raising agricultural and rural nonfarm profits and
labour income.
Leading to lower prices for (nontradable) foods.
Tightening urban and rural labour markets and thus
raising unskilled wages in the wider economy.
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5. Challenges and Opportunities
 Agriculture can play a crucial role in the structural
transformation of PICs.
 Sustained economy wide growth can benefit agriculture as
demand and prices of agricultural goods increase.
 Factors that promote higher economy wide growth are
good for agriculture; improved macroeconomic stability,
better investment climate and availability of cheap
financing.
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5. Challenges and Opportunities
 Actions to propel Agriculture
Recognize the main opportunities for producers by
identifying regional markets.
To improve agricultural productivity, farmers need access to
input and output markets.
Improve regional and domestic infrastructure.
Help PICs expand trade in agriculture and food products.
Improve scientific and research capacity.
Rising demand in urban food markets creates opportunity
for industrialization based agribusiness.
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