Economic Development Of Hawaii


Economic Development Of Hawaii Essay, Research Paper

Hawaii, with an area of 28,313 sq. km (10,932 sq. mi.), is the

43rd largest state in the U.S.; 6.9% of the land is owned by the

federal government. It consists mainly of the Hawaiian Islands, eight

main islands and 124 islets, reefs, and shoals. The major islands in

order of size are Hawaii, Maui, Oahu, Kauai, Molokai, Lanai, Nihau,

and Kahoolawe. Population growth has increased by 80,000 persons over

the past five years. Demographics show a large number of Hispanic

origin: Asian Hispanics are the most populated with white Hispanic

and Asian non-Hispanic following. Hawaii’s economy has been long

dominated by plantation agriculture and military spending. As

agriculture has declined in importance, the economy has diversified to

encompass a large tourist business and a growing manufacturing


Hawaii’s economy has changed drastically since statehood. In

1958, defense, sugar, and pineapple were the primary economic

activities, accounting for 40% of Gross State Product (GSP). In

contrast, visitor-related expenditures stood at just over 4% of

Hawaii’s GSP prior to statehood. Today the positions are reversed;

sugar and pineapple constitute about 1% of GSP, defense accounts for

just under 11%, while visitor-related spending comes close to 24% of

Hawaii’s GSP.

The movement toward a service- and trade-based economy becomes

even more apparent when considering the distribution of Hawaii’s jobs

across sectors. The share of the economy’s jobs accounted for by

manufacturing and agriculture have declined steadily since 1959 and

each currently makes up less than 4% of total jobs in the economy. At

the same time, the shares of jobs in wholesale and retail trade and in

services have risen, standing at about 23% and 28%, respectively.

Since 1991, Hawaii’s economy has suffered from rising rates of

unemployment. This stands in marked contrast to the period 1980 to

1993, when the state enjoyed very low unemployment rates relative to

the nation as a whole. But by 1994 the recession had raised Hawaii’s

unemployment rate to the national average (6.1%) for the first time in

15 years. In 1995, the state’s unemployment rate improved slightly in

the first eleven months of the year to 5.4 percent, a 0.6 percentage

point decline from the first eleven months of 1994. Despite the lower

unemployment rate, the total number of wage and salary jobs declined

by 0.6 percent during the first eleven months of 1995. This was due in

part to a fall in part-time jobs which are often held by persons who

also have primary jobs elsewhere in the economy. The number of

construction jobs declined by more than 7 percent in the same period.

Other industries–namely, manufacturing, agriculture, transportation,

communications/utilities, and finance, insurance, and real

estateexperienced declines in the number of jobs as well. Jobs in

retail trade and services, however, increased 2.2 percent and 0.5

percent, respectively, reflecting an increase in visitor spending

since 1994. Following a dismal first quarter due to the Kobe

earthquake, there was steady growth in the tourism sector in 1995 with

increases in the number of visitor arrivals and hotel room rates. The

number of visitor arrivals to the State increased 3.2 percent during

the first eleven months of 1995. The increase in the value of the

Japanese yen vis-a-vis the U.S. dollar during this period contributed

to a rise in eastbound visitors in the second and third quarter of

1995 by 11.8 percent and 15.4 percent, respectively. However, in the

first eleven months of 1995, the number of westbound visitors remained

flat. This year is the 11th year in a row that the U.S. has

experienced reduced spending on national defense. The continued

reduction is due to the decline in superpower tensions and the

political disintegration of the Soviet and East European-block during

this decade which have prompted the Congress and Administration to

initiate significant cuts in the level of defense expenditures in

recent years. However, because of the strategic location of Hawaii in

the Pacific this changing military posture has not significantly

affected Hawaii’s $3.7 billion Federal defense sector.

The construction industry continued its decline in the first

eleven months of 1995. This loss was mainly due to decreasing demand

exacerbated by higher interest rates during the first half of 1995,

following a 12.4 percent drop in 1994. Another reason is that

construction costs rose by 15 percent from 1992 to 1995, which is much

higher than the consumer inflation rate of 8 percent during the same

period. Agriculture jobs, including self-employed, showed a 6.6

percent decline in the first eleven months of 1995 from the same

period in 1994. In the earlier part of the year, the agricultural work

force fell to its lowest level in 21 years. Agriculture accounts for

slightly less than 2percent of jobs in the state.

Latest data from the Bureau of Economic Analysis ranked Hawaii

26th among the 50 states in terms of growth in personal income between

the first and second quarters of 1995. During the second quarter of

1995, personal income was estimated to be an annualized 29.2 billion

dollars, up 4.0 percent at an annual rate from the second quarter of

1994. The growth in personal income is mainly attributed to an

increase in rents, dividends and interest, along with transfer

payments of 7.6 percent and 7.5 percent in the second quarter,

respectively. The largest component of personal income, wages and

salaries, increased by 2.3 percent over the period as compared to only

1.0 percent in 1994.

The consumer inflation rate, as reflected in the percentage

change of the Honolulu Consumer Price Index, increased by 2.1 percent

between the first half of 1994 and the first half of 1995. In the

second half of 1995, the inflation rate slowed to 0.7 percent as

compared to the second half of 1994. If the current trend continues,

overall inflation for Hawaii in 1995 will be slightly lower than 2.0

percent, the lowest since 1986. DBEDT expects the Honolulu Consumer

Price Index to increase about 2.0 percent in 1995 and 2.5 percent in

1996. This is lower than the expected consumer price increases of 3.0

to3.5 percent for the nation as a whole in 1996, reflecting the

relatively slower growth of Hawaii’s economy. Real Gross State

Product (RGSP) is expected to grow at an annual rate of approximately

2.2% between 1995 and 2000. Average annual growth in the number of

civilian jobs is projected to rise by 1.8% per year over the next five

years. Over the same period, the unemployment rate should decline

gradually from 5.5% in 1995 to 5.3% over 1996-2000. Growth of real

disposable income is anticipated to rise to 1% next year and to an

average of 1.2% each year to 2000.

Hawaii’s people have seen dramatic changes in the economic

structure over the last generation. The military and agriculture, the

traditional pillars of the Hawaii economy, have declined and no longer

employ the bulk of the labor force. At the same time, Hawaii’s

increasing reliance on service industries, especially tourism, makes

them particularly sensitive to external economic events. To some

extent, the effects of this sensitivity are reflected in the

unprecedented long period of low growth in recent years. At no time

since statehood has Hawaii grown at such low rates for such a

sustained period. The initial downturn was clearly associated with the

cyclical recession on the mainland and eventually in Japan. This

cyclical downturn was exacerbated by important structural changes in

Hawaii’s economy. While Hawaii cannot ignore and must still address

these structural issues, it appears that it is now rebounding from the

cyclical downturn. Fourth quarter economic data for 1995 show that it

is entering an economic recovery and prospects for the medium term are



1. HTTP://, internet.

2.”Hawaii,” Microsoft (R) Encarta. Copyright (c) 1994 Microsoft

Corporation. Copyright (c) 1994. Funk & Wagnall’s Corporation.

3. “Hawaii,” World Book Encyclopedia. C1996. Worldbook, Inc.

Chicago, London, Sydney, Toronto.

4. Hawaii. Sylvia McNair. C1990. Childrens Press. Chicago.

5. “Hawaii” 1995 Almanac. Microsoft Bookshelf. C1995.

6. Hawaii. Bureau of Economic Analysis. C1996.

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