The Economics of the ‘Arc of Instability’

Abstract

Why are the Melanesian states of Fiji, Papua New Guinea, Solomon Islands and Vanuatu experiencing considerable civil unrest and, in this respect, why are they so different from the other small island states of the Pacific region? It is argued that while, like the other Pacific island countries, they have had poor economic growth and high birth rates, they do not have easy emigration to high‐income countries. Therefore, they have large pools of under‐employed people. Other distinguishing characteristics are their richness in natural resources and weak central governments relative to local‐level power structures. The civil unrest derives from competition for the natural resources in an environment of weak states and hence poorly defined and enforced property rights, and moreover, the large pool of under‐employed provides ample scope for the creation of grievances to back up the claim for the resources. One message for donor nations is that the provision of compensation to settle the grievances will likely only generate further grievances and not resolve the basic problem.