A Growth Diagnosis of New Caledonia

Abstract

New Caledonia is an archipelago located in the South Pacific. It is a former French colony that has acquired political autonomy over the period 1988 to 1998 but remains under the French jurisdiction. Over the past twenty years, the local government has worked towards diversifying the economy of the archipelago and has to this end implemented a set of import-substitution policies consisting of three industrial policies implemented at the provincial level, and trade policies implemented at the ‘country’ level. Import-substitution policies act by subsidising investment in physical capital and protecting infant industries from imported competition to develop the domestic production of agricultural and manufacturing goods in order to trigger the structural transformation of the economy towards an industrialised economy. Import-substitution policies are based on capital accumulation models of economic growth, such as the Solow-Swann model, Rostow’s stages of development and Lewis’ dual-economy model of development. The set of import-substitution policies of New Caledonia were part of a development programme designed to help the former colony move away from its dependency on nickel and acquire a larger economic autonomy in the lead toward a referendum for independence scheduled in 2018. But despite these policies, the economy of New Caledonia has quasi-stagnated. In this paper I discuss New Caledonia’s import-substitution policies and I analyse the type of incentives they have set for entrepreneurship.