Paradise Lost? Growth, Convergence and Migration in the South Pacific


WP/95/28-EA
Paradise Lost? Growth, Convergence and Migration
in the South Pacific by Paul Cashin and Norman Loayza

This paper examines the growth experience of seven developing island
economies of the South Pacific--Fiji, Kiribati, Papua New Guinea, Solomon
Islands, Tonga, Vanuatu, and Western Samoa--and their developed neighbors,
Australia and New Zealand, during the period 1971-93. The Solow-Swan
neoclassical growth model provides the analytical framework for this study,
and the implications of this model are tested using both the cross-sectional
and time-series dimensions of the data. The econometric technique employed
in the paper is Chamberlain's -matrix estimator, which accounts for
unobserved country-specific heterogeneity in the growth process and any bias
resulting from errors in the measurement of real per capita GDP.

After controlling for investment and migration, as well as for
unobserved country-specific effects, the paper finds that the nine island
economies have been converging at a relatively rapid speed--about 4 percent
per year--toward their respective steady-state levels of per capita GDP.

When analyzing measures of the cross-sectional dispersion of national
income, the paper finds that net private and official transfers have ensured
that the dispersion of real per capita national disposable income in the
region has remained relatively constant over the 1971-93 period. However,
the dispersion of countries' real per capita GDP, which excludes such
transfers, clearly widened over this same period.