This thesis develops a framework and identifies areas for policy intervention aimed at building knowledge-based service economies in small island states. Earlier studies on building knowledge-based economies have focused mainly on developed or the larger, newly industrialized developing countries with high technology as their focus.
In this thesis, I reviewed the relevant literature on national systems of innovation studies focusing on the macro-level analysis tools, innovations in services and the catch-up hypothesis. Based on the review I developed a conceptual framework, National System of Service Innovation, for building knowledge-based service economies. The model, a hybrid of the approaches, features three main actors, Government, Service Sector and Service Based R&D. Other feature of the model, a support mechanism, comprised of education system, financial systems and a supportive regulatory environment. ICT serves as an enabling technology for the transfer of information and economic transactions. The objective of the model is to foster the diffusion of ICT, stimulate innovation in the provision of services and develop the social capacity.
A country case study based on the components of the framework was then conducted to identify ‘gaps’. The major findings of the analysis are:
• Businesses operating in the economy, based on their modes and sources of innovation, are classified as being cost reducing value chain-chain oriented process and low-profile inward looking innovators. They generally benefit from the diffusion of ICT and the supply of ICT skills within the society and favorable operating environment.
• In some cases, initiatives identified as being essential to building knowledge-based service economies, were being executed by government, albeit with the wrong focus and in an uncoordinated manner.
I conclude that, government, the largest provider of services, is the key ingredient in the transformation to a knowledge-based service economy and a formal policy is ‘sin qua non’, to guide the process. The policy must address specific issues considered essential for the building knowledge-based service economies.

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