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 


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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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