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

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. Outline of Presentation
 Global Crises in Perspective
 The Economic & Diversification
Performance of SIDS
 Innovation Performance in SIDS
 Diversification and Innovation Options

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. 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. 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. Source: UNCTAD Handbook of Sta7s7cs 2008

7. Source: World Economic & Social Survey 2008

8. Patent Registration in the US,
1965 - 2006
(source: USPTO 2008)

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. 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. 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. 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.