Global and Regional Spillovers to Pacific Island Countries

Author/Editor:

Niamh Sheridan ; Patrizia Tumbarello ; Yiqun Wu

Publication Date:

June 1, 2012

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

Regional integration of Pacific Island countries (PICs) with Australia, New Zealand, and emerging Asia has increased over the last two decades. PICs have become more exposed to the region’s business cycles, and spillovers from regional economies are more important for PICs than from advanced economies outside the region. While strong linkages with Asia would help in the event of a global downturn, PICs remain particularly vulnerable to global commodity price shocks. In this paper, we use a Vector Error Correction Model (VECM) for each PIC to gauge the impact of global and regional growth spillovers. The analysis reveals that the impact on PICs’ growth from an adverse oil shock would be substantial, and in some cases even larger than from a negative global demand shock. We also assess the spillovers to the financial sector from the deterioration of the global outlook. PICs should continue to rebuild policy buffers and implement growth-oriented structural reforms to ensure sustained and inclusive growth.

Series:

Working Paper No. 12/154

Subject(s):

English

Publication Date:

June 1, 2012

ISBN/ISSN:

9781475504491/1018-5941

Stock No:

WPIEA2012154

Price:

$18.00 (Academic Rate:$18.00)

Format:

Paper

Pages:

41

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