Economic Development Prospects for a Small Island Economy: The Case of Guam

By Ruane, Maria Claret M. | Journal of Economics and Economic Education Research, January 1, 2012 | Go to article overview

Economic Development Prospects for a Small Island Economy: The Case of Guam


Ruane, Maria Claret M., Journal of Economics and Economic Education Research


ABSTRACT

This paper focuses on key characteristics of a small island economy in order to evaluate its economic development prospects. In particular, this paper has chosen to study the economy of the island of Guam, identified its key characteristics and investigated the economic development challenges it faces and the opportunities available to it.

INTRODUCTION

Guam is an unincorporated territory of the United States. It is an island located in Western Pacific and provides the U.S. with a strategic advantage to secure the defense and stability of the Asia-Pacific region. As an economy, Guam is small and undiversified but is endowed with natural resources and a multicultural labor force. After World War II, Guam proved itself to be a resilient economy. However, in the more recent past which was, and still is, characterized by increased globalization, Guam faced many factors that were beyond its control, which when combined with having to deal with natural disasters, took a toll on the well-being of its people. Of course, globalization and natural disasters are among many other challenges that Guam continues to face. The key is to find a balance between the positive and negative aspects of the economy and society and to transform these challenges into opportunities that will improve the current situation. Doing so will put Guam in a position of strength as it forges ahead in its pursuit of economic development.

ENVIRONMENTAL ANALYSIS

An analysis of the environmental factors or conditions that are relevant to Guam's prospects for economic development is a good starting point for evaluating the challenges and opportunities that are available to Guam. In this regard, several descriptors have been identified to describe key characteristics of the Guam economy, with this paper focusing on the following six: (1) a small island economy that is relatively open that is (2) currently lacking economic diversification but (3) endowed with natural resources and a (4) multicultural society. It is (5) an unincorporated U.S. territory (6) located strategically in Asia-Pacific. Each descriptor presents Guam with challenges and at the same time opportunities. These descriptors and their implications for challenges and opportunities in economic development are discussed in the next section in turn.

SMALL ISLAND OPEN ECONOMY

Small Domestic Economy

Guam's smallness can be measured in several ways. First is in terms of its small population, which is estimated to be around 175,000 people and, consequently, a small labor force of around 74,950, of which 64,970 (86.7%) are employed and 9,970 (13.3%) are unemployed based on the latest unemployment report in March 2011 (Guam Bureau of Labor Statistics). During stronger economic periods when labor demand exceeds the available labor force, Guam has supplemented its local labor force with those from the U.S., neighboring island that are freely associated with the U.S. ((i.e. the Commonwealth of Northern Marianas, Federated States of Micronesia, Republic of the Marshall Islands and Palau) and the use of foreign workers.

Guam is also small in terms of economic size. The latest estimate of its overall economy, its Gross Domestic Product, GDP (also referred to as Gross Island Product, GIP) is for the year 2007 and valued at around $4 billion (U.S. Department of Commerce-Bureau of Economic Analysis, 2010). Combining estimates of GIP and population gives rise to per capita income, which is a measure of purchasing power, of around $23,000.

Guam's small population and relatively lower per capita income have prevented many businesses from achieving economies of scale and producing goods and services to local residents at lower prices. Not surprisingly, the cost of living on Guam is high but not different from other small island economies, including Hawaii. Guam's lack of economies of scale also presents challenges to autonomous government agencies that provide utilities and is also an obstacle from current efforts toward recycling, which have required recyclable materials to be gathered and then shipped off-island for recycling. …

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