ABSTRACT
The South Pacific island economies have become part of the globalization process of the last two decades. The concern of many less developed countries (LDCs), and in particular small island states, is that they will be disadvantaged in the emerging global economic order and some will be further marginalized in world trade, investment, commodities and capital markets. Size and vulnerability are important factors for small states in terms of economic and environmental threats (see, Read, Chapter 12, Bräutigam and Woolcock, Chapter 13, this volume). This chapter examines the impact of globalization on the economies of Fiji and the Solomon Islands. The first section presents an overview of the economic characteristics of these two small island states. Financial and trade flows over the past two decades are examined along with the effects of globalization on the growth performance of two South Pacific island countries in the second section. In the third section we evaluate whether capital flows: foreign direct investment (FDI) and foreign aid, and trade affect growth. Other conditioning factors, such as inflation, real effective exchange rate, savings, growth in main trading partners, are included to analyse the dynamic link to economic growth. The final section presents the policy implications of the study.
