The Pacific Speed of Growth: How Fast Can It Be and What Determines It?

This study aims to test within a relatively homogeneous group of small states whatdifferentiates the growth performance of Pacific island countries (PICs) from their peers. Wefind that PICs are disadvantaged by distance and hampered by lower investment and exportscompared with other small island states, but greater political stability, catch-up effects fromlower initial incomes, and slower population growth have helped offset some of thesedisadvantages. On balance, policy-related factors, together with geography-relateddisadvantages, have led to growth rates in PICs that are much lower than in other small states.We also examine how real exchange rate appreciation, unfavorable developments in theexternal trade environment, and rising international transport costs may have contributed toPICs' slower growth over the past decade.