Services and economic growth in Pacific Island countries

Purpose – The purpose of this paper is to present an empirical study of the contribution of the services sector to per capita economic growth for Pacific Island countries. Design/methodology/approach – Within the new growth theory framework, the empirical procedure consisted of the regression analysis of data using the panel data fixed effects procedure. Findings – The results confirm the positive and statistically significant correlation of services growth to per capita gross domestic product growth. Research limitations/implications – Limitations largely centre on the use of aggregate cross-country data. Variations may be found in what actually drives the services growth at the country level. Thus, a country-specific study would be more appropriate in order to get more robust results. Also, the data do not capture the effect of non-market services. Disaggregate services data that separate market data services with non-market services would provide a more accurate picture of the influence of non-market services. Practical implications – The practical implication is that that service sectors in the Pacific Island countries ought to be given greater support, for example, investment in physical and institutional infrastructure, market access, financial support, skill development and investment incentives. Social implications – Pacific Islands services sectors contribute to household welfare through paid employment and meet household demands of service sector output. Originality/value – This paper presents the first study among the Pacific Island countries that has examined the importance of services sector and its contribution to growth. The findings of this study are useful to Pacific policy makers in terms of improving the services sector through instituting appropriate growth enhancing policies.