Diversifying Hawai‘i’s specialized economy: A spatial economic perspective

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Specialization in tourism exposes the economy of Hawai‘i to external shocks that trigger collapses in tourist numbers. Furthermore, Hawai‘i’s economic growth has diminished for decades as the dominance of tourism has not generated productivity growth. In response, policy-makers in Hawai‘i increasingly emphasize diversification. This article examines a spatial economics perspective to explain why Hawai‘i is so specialized and to sketch policy for diversification and growth. Isolated, small, and open economies tend to be more specialized in one or a few industries because increasing returns to scale generates a coordination problem for new industries. By targeting industries that use related know-how or a Hawai‘i-specific resource, Hawai‘i can access productivity gains from the scale of related and location-bound industries.

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