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, ezding at about 23% and 28%, respectively.

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

unemployment. This ezds 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