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                       Economic Development of Hawaii
         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://www.hawaii.gov.html, 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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