Applying the growth identification and facilitation framework to the small island Developing States : the case of Solomon Islands

Abstract

This report employs the Global Identification and Facilitation Framework to the Solomon Islands, aiming to reveal latent comparative advantages and propose targeted national policies. By analyzing the factor endowments, the paper argues that due to abundant natural resources and limited capital formation, the Solomon Islands should focus on developing labor-intensive light manufacturing and resource-based manufacturing. In light of potentials and feasibilities, the paper identifies China as a benchmark country that could serve as a reference and provide industrial transfer opportunities, given its industrialization trajectories and relocation possibilities of light manufacturing sector. The identified key constraints to the recommended specialization include low accessibility of electricity, high transportation, and labor cost. Therefore, to stimulate structural economic transformation in the Solomon Islands, the report highlights the need for the government to actively seek external funding for infrastructural improvement and gradually raise the reserve ratio to reduce the real exchange rate and avoid “Dutch disease”.