Working Smart and Small

Working Smart and Small

The Role of Knowledge-based and Service Industries in Growth Strategies for Small States You do not have access to this content

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Author(s):
Mahvash Qureshi, Dirk Willem te Velde
01 Oct 2008
Pages:
150
ISBN:
9781848590052 (PDF)
http://dx.doi.org/10.14217/9781848590052-en

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Small states face serious challenges for development due to their size, remoteness and vulnerability. In recent years, the prospects for small states have deteriorated further due to preference erosion and the emergence of larger competitors such as India and China. Working Smart and Small suggests how small states can reposition themselves in the global economy and move into knowledge-based and service industries.

Part I provides an overview of general factors stimulating or constraining the development of services sector and trade in services. It also identifies key trends and provides analysis.

Part II gives six case study examples of how some small states have promoted knowledge-based and service industries in their economies. The small states studied, from different regions and income groups, are Botswana, Mauritius, St. Lucia, Singapore, United Arab Emirates and Vanuatu. The studies cover the performance and supporting factors in five promising service sectors: the financial sector, information and communication technologies, education, professional services and tourism.

Part III considers the policy implications.

This book will be of particular interest to economic policy-makers and researchers working on issues of concern to small states.
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Expand / Collapse Hide / Show all Abstracts Table of Contents

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  • List of Abbreviations
  • Introduction

    This book examines the promotion of knowledge-based and service industries in small states. It was commissioned by the Small States section of the Economic Affairs Division of the Commonwealth Secretariat. This request followed the Small States Agenda proposed in the Commonwealth/World Bank Joint Task Force Report of April 2000. The review of this agenda, entitled ‘Toward an outward-oriented development strategy for small states: issues, opportunities and resilience building’, was prepared in August 2006. Both reports identify serious challenges for development in small states due to their small size, remoteness and vulnerability. The review suggests that over the past few years, the prospects for small states have deteriorated further due to (future) preference erosion and the emergence of new, large competitors. It proposes that small states need to reposition themselves in the global economy and move into knowledge-based and service industries. Growth strategies in the new competitive environment will also increasingly rely on the promotion of knowledge-based and service industries. The study highlighted in this book suggests how this might be done.

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  • Expand / Collapse Hide / Show all Abstracts The Importance of Services for Small States 3

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    • Being Small: Old and New Challenges

      This chapter reviews the general developmental challenges faced by small states, which relate to their size and location. Earlier literature identifies private sector development, especially in the manufacturing sector, as one of the primary concerns in these states (Winters and Martins, 2005; Briguglio et al., 2006; Pollard, 2007). Due to their small populations, the domestic market size is also small in these countries. As a result, most of the firms in small states are small and medium enterprises with limited opportunities for reaping the benefits of economies of scale and investing in research and development. Hence, unit costs of production are higher as compared to those in larger economies. Also, most small states have a poor investment climate, weak institutions, are remote and lack skilled labour or adequate human capital, which limits access to external capital and constrains industrial development.

    • Opportunities for Small States

      Despite the obvious disadvantages, some studies suggest reasons for optimism for small states. For example, Spolaore (2004) argues that previous studies like Winters and Martins (2005), might be overestimating the costs of being small. He observes that high costs associated with small size may in reality be due to physical isolation or remoteness and/or other political characteristics rather than actual size.1 This view is supported by Armstrong et al. (1998) who do not find evidence that growth is determined by population size once initial income and regional effects are taken into account.

    • Performance and Trends of Services and Knowledge-based Industries in Small States

      This chapter presents an analysis of the importance of the services sector for small states using typologies according to income (low, middle and high) and geographic location (landlocked, island and others) of small states.

    • Developing Trade in Services: A Framework

      Developing trade in services is a complicated process and many countries do not have an explicit policy for this area or a detailed, overall plan to develop trade in services. Trade in services, a catalyst to promote economic diversification away from traditional sectors, involves a fundamental shift in mindset throughout the whole economy along with different types of actions. Here small countries might be at an advantage, because in theory they are more flexible to introduce new economic policies (though this will also depend on political systems).

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  • Expand / Collapse Hide / Show all Abstracts Country Case Studies on Developing Trade in Services in Small States

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    • Botswana

      Botswana is a landlocked country located in sub-Saharan Africa (SSA) with a real per capita GDP (purchasing power parity [PPP]-adjusted) of US$9,652 and a total population of 1.8 million in 2005. It has experienced one of the most impressive growth rates in the world over the last four decades and had the highest rate of per capita growth in the world between 1965 and 1998. The average annual GDP growth rate since the 1990s has been 5.3 per cent (Chart 6.1).

    • Mauritius

      Mauritius is a middle-income African island state located in the Indian Ocean. In 2005, it had a real per capita GDP (PPP-adjusted) of US$11,141 and a population of about 1.2 million. Its average annual GDP growth rate during the 1990s was over 5 per cent, but this dropped to 4 per cent during 2000–05 (Chart 7.1).

    • St Lucia

      St Lucia is a small Caribbean island state with real per capita GDP (PPP-adjusted) of US$5,700 and total population of about 160,000 people in 2005. As in other countries of the Organisation of Eastern Caribbean States (OECS), the share of services in GDP and trade is high and has increased over time (Charts 8.1 and 8.2).

    • Singapore

      Singapore is a high-income island located in the Pacific with real per capita GDP (PPPadjusted) of US$26,763 and total population of 4.4 million in 2005. Singapore, with an average annual growth rate of 7 per cent since the 1990s, is a well-known economic success story. The services sector has played an important role in the economic development of this small island, contributing to 64 per cent of GDP and over 69 per cent of employment in 2005 (Chart 9.1). Its GDP and employment share is comparable to that of other high-income East Asian economies such as Japan, Taiwan and South Korea.

    • United Arab Emirates

      United Arab Emirates (UAE) is a Middle Eastern federation comprising seven states – Abu Dhabi, Ajman, Dubai, Fujairah, Ras-al-Khaimah, Sharjah and Umm-al-Quwain. Abu Dhabi, Dubai and Sharjah are the three largest states in terms of population as well as the size of their economies. UAE is an oil rich country, with 9 per cent of total world reserves of crude oil and 5 per cent of world reserves of natural gas. In 2004, it had a real per capita GDP (PPP-adjusted) of US$22,000 and a population of 4.3 million. With an average annual growth rate of over 7 per cent since 2000, the UAE economy is one of the fastest growing in the world.

    • Vanuatu

      Vanuatu is a middle-income small island state comprising 83 islands located in the South Pacific Ocean. In 2005, it had a real per capita GDP (PPP-adjusted) of US$3,041 and a total population of about 220,000. The country has experienced modest annual growth rates in recent years and the annual GDP growth has averaged about 3 per cent since 1990 (Chart 11.1). Most of the population is engaged in small-scale agricultural activities, which constitute about 20 per cent of GDP. Domestic exports are mainly primary goods, with copra being the most important cash crop for the economy. Other leading exports include beef, cocoa, kava, coffee and timber.

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  • Expand / Collapse Hide / Show all Abstracts Conclusions and Implications

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    • Conclusions and Implications

      The small states agenda proposed in the Commonwealth/World Bank Joint Task Force Report of April 2000 and the review of this agenda, ‘Toward an outward-oriented development strategy for small states: issues, opportunities and resilience building’, of August 2006 both identify serious challenges for development in small states due to their small size, remoteness and vulnerability. The review suggests that over the past few years, the prospects for small states have deteriorated further due to preference erosion and the emergence of new, large competitors. It proposes that small states need to reposition themselves in the global economy and move into knowledge-based and other service industries. This book discusses the challenges faced in doing this and how they might be overcome. Growth strategies in the new competitive environment will increasingly rely on the promotion of knowledge-based and service industries.

    • References and Appendix
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