INTRODUCTION AND BACKGROUND
There is a large body of empirical analyses of the impact of international economic support
or tourism on internal economic growth in some island states; for example, GANI, 1998,
examined the macroeconomic determinants of economic growth in the South Pacific island states
using cross-country data and GOUNDER, 2001, demonstrated the relationship between foreign
aid and economic growth in the Fiji islands using time series data. We propose several reasons
why the economies of most island states seem unable to grow very rapidly. First, the economies of
most island states depend largely on agriculture, fisheries, and forestry. Second, due to the
constraints of small populations, it is hard to foster the manufacturing industry, which has
economies of scale and agglomeration externalities. Some developed countries, however, also face
these issues and try to deal with them to develop the local economy.
Japan is an island state. It consists of about 6,800 small inhabited islands in addition to the
four main islands (Hokkaido, Honshu, Shikoku, and Kyushu) and Okinawa Main Island located in
the southwest of the Japanese Archipelago1. As many of these islands are located far from the
main islands or lack affordable transportation, their economies are isolated from the mainland;
that is, there is a difference in affluence between the people living in small islands and those living
on the mainland.
The Japanese government has been implementing a wide variety of measures at the national
level to promote the development of remote islands. The Improvement of Sea Routes to Remote
Islands Act enacted on July 4, 1952 (hereafter referred to as the “Remote Islands Act”), was the
first measure toward assisting the remote islands. It laid down some guidelines for economic
development in remote islands: under this Act, the central government would provide public funds
to maintain and improve access from remote islands to the mainland. The Law for Development
of Remote Islands was enacted on July 22, 1953, as temporary legislation with a limit of 10 years
following the Remote Islands Act; it has been amended four times and extended five times during
the past 50 years. The Law for Development of Remote Islands aims to improve fundamental
conditions in remote islands, focusing on improving and upgrading social as well as industrial
infrastructure. The role of remote islands in protecting an exclusive economic zone was also
specified through an amendment to the Law for Development of Remote Islands in 2003. There
are also other measures promoting economic development in each region: the Special Measures
Act for the Promotion and Development of the Amami Oshima Islands (enacted June 21, 1954);
the Special Measures Act for the Promotion and Development of the Ogasawara Islands (enacted
December 8, 1969); and the Special Measures Act for the Promotion of Okinawa Prefecture
(enacted December 31, 1971)2. All these laws lay down the basic principles for promoting
economic development in each region: the municipalities that supervise remote islands under
these Acts had to lay down to develop their own regional plan and have been provided with
financial and legal support for industrial development from the central government. The funds for