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Total Factor Productivity

Draft

Total Factor Productivity Growth in Pacific Island Economies:
Case Study of Fiji, Papua New Guinea and Samoa.

by

Mahendra Reddy
University of the South Pacific

and

Nilesh Kumar and Yogesh karan
Training and Productivity Authority of Fiji

A. Introduction

The economic performance of the Pacific Island Economies (PICs) over the last two decades has been below the potential for a developing country standard (see Table 1 for GDP growth data). There have been years during which the economies have done well and while there have also been periods when there was marginal or negative growth.

The poor performance of the PICs economies have challenged PICs policy makers to re-look at their domestic economies policy making. There have also have been strong pressure from lending institutions such as the IMF and World Bank on PICs to undertake market oriented reforms. The reforms have been mainly in areas of trade, goods market, factor market, labour market, financial market and public sector. Reforms in the goods market involved the dismantling of barrier to trade such as removal of licenses, reduction or elimination of tariffs and quota’s. Reforms of the financial sector involved the removal of restriction on entry and exits of financial institutions and relaxation on the movement of capital. Labour market deregulation has been aimed at making it more flexible.

The market oriented reforms have its origins linked to classical economist Adam Smith, who wrote in his famous book, An Inquiry into the Nature and Causes of the Wealth of Nations, that trade can be seen as a vent for surplus production and widening the market and improving the division of labour. Leading on from the classical theory, the Neo-Classical economics proposes that an economy left to the market with minimum intervention will allocate resources efficiently and generate growth. The neoclassical theory of growth assumes that markets are working perfectly and that economies are...