Exploiting comparative advantage in agriculture and resources: the way forward for Small Island States

Using Papua New Guinea as a case study, this paper investigates the macroeconomic and sectoral impacts of various developments in its agricultural and resource sector. It was found that commodity booms from 2004 to 2009 and the proposed large liquefied natural gas project increase output growth substantially but with Dutch disease consequences. The output expansion of the agricultural and fishery sectors on the other hand has limited positive impacts and the challenge lies in raising the productivity growth in these sectors and the better use of foreign aid. Lastly, the optimal policy strategy for sustainable development in the agricultural, fishery and resource sectors lies in the packaging of appropriate complementary policies (both institutional and economic) that support one another and the coherent implementation of these policies in a timely manner