Toward Improving Export Diversification and Economic Growth in Small Island Developing States

This dissertation seeks to address the following research question: How does export diversification impact economic growth in Small Island Developing States? More specifically, this dissertation sheds light on the strength and nature of the relationship between export diversification and economic growth with a focus on Small Island Developing States (SIDS). Informed by prior literature and the empirical analysis in this dissertation, I propose a conceptual industry development model that aims to stimulate and promote export development, diversification, and growth within the context of Small Island Developing States in general and with a specific focus on The Bahamas. In accordance with USF’s DBA Dissertation Proposal guidelines, dissertation option 2, which includes a collection of three discrete papers has been selected to present the research. The three papers form a coherent set of contributions, with each paper building on and informed by the previous paper. Paper 1, titled “How Does Export Diversification Impact Economic Growth?”, has been accepted for publication by the Muma Business Review (MBR) and is in press. Paper 1 is presented in its entirety in Appendix H. This paper utilizes a mixed method approach to conduct a literature review of existing econometric studies to determine the key drivers of export diversification and economic growth, and to examine whether export diversification enhances or stifles economic growth. The paper differs from previous studies as it focuses on identifying the key variables used, the frequency with which they are used and their degree of significance based on a sample of 48 econometric studies that focused on measuring export diversification, economic growth and the linkage between the two within the context of developed and developing countries. The study highlights a key gap in the existing literature, namely a lack of empirical studies focused on how export diversification may or may not contribute to economic growth in the context of small island states. Paper 2 titled “The Relationship Between Export Diversification & Economic Growth: A Comparative Analysis with a Focus on Small Island States” employs panel data for 69 economies, segmented by country classification and geography, across a timespan from 1995 to 2007 to examine the empirical relationship between export diversification and economic growth in Small Island Developing States (SIDS), an area for which theory has conflicting views and virtually no empirical research has been undertaken. Consistent with previous research and robust to different specifications of the growth equation, the empirical results find a non-linear, U-shaped relationship between export concentration and economic growth. Further, the study finds that the U-shaped relationship is moderated by the size of the population whereby small nation states, inclusive of small island states, seem to benefit more from export diversification as compared to mid-size and large economies. Paper 3 titled “A Conceptual Model to Promote Export Diversification & Economic Growth in Small Island Developing States (SIDS) – An Application to The Bahamas” is a policy paper. Based upon a theoretical assessment of the drivers of export diversification as performed in paper 1 and an empirical study of export diversification and economic growth which establishes that small island states seem to benefit more from export diversification as compared to mid-size and large economies as found in paper 2, this paper (1) outlines The Bahamas’ prior efforts at diversifying the economic and export base of the country, (2) identifies obstacles such as high debt and education, (3) reviews successful Small Advanced States (SAS) and SIDs to understand the strategies and action steps taken to fuel export diversification, (4) posits a conceptual model for The Bahamas utilizing key trade mechanisms inclusive of business incubators supported by EPZs and E-commerce, and (5) offers specific policy recommendations to create jobs, diversify the economy and revitalize growth in The Bahamas