The Pacific Speed of Growth: How Fast Can It Be and What Determines It?

IMF Working Papers, May 9, 2013

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Objective: Test within a relatively homogeneous group of small states what differentiates the growth performance of Pacific island countries (PICs) from their peers.
Core conclusion: Geography-related disadvantages and policy-related factors have resulted in growth rates in PICs that are much lower than in other small states.

Geography and distance:
- PICs are disadvantaged by distance compared with other small island states.
- Rising international transport costs are examined as a contributor to slower growth over the past decade.
Trade and external environment:
- PICs are hampered by lower exports compared with other small island states.
- Unfavorable developments in the external trade environment may have contributed to PICs’ slower growth over the past decade.
- Real exchange rate appreciation is examined for its role in slower growth.
Investment and domestic factors:
- Lower investment in PICs relative to other small island states is identified as a drag on growth.
Offsetting factors:
- Greater political stability in PICs has helped offset some disadvantages.
- Catch-up effects from lower initial incomes have supported growth.
- Slower population growth in PICs has helped offset some geographic and policy disadvantages.

Net effect: Policy-related shortcomings, in combination with geography-related disadvantages, explain much of the slower growth performance in PICs relative to other small states.
Areas for policy focus implied by the analysis:
- Strengthen policies to raise investment levels.
- Enhance export performance and resilience to adverse external trade developments.
- Address vulnerabilities to transport-cost increases and remoteness (implicit policy leverage points include connectivity and trade facilitation).
- Consider macroeconomic policies responsive to real exchange rate dynamics.

Authors: Yongzheng Yang, Hong Chen, Shiu raj Singh, Baljeet Singh
Date: May 9, 2013
Series: IMF Working Papers, Working Paper No. 2013/104
Pages: 44
DOI: https://doi.org/10.5089/9781484399040.001
ISBN: 9781484399040
ISSN: 1018-5941
Subjects: Competition; Exports; Financial markets; Foreign exchange; Imports; International trade; National accounts; Real exchange rates; Transportation
Keywords: aid; Asia and Pacific; Australia and New Zealand; Competition; convergence; economic recovery; Exports; financial crisis; Global; growth; growth performance; growth rebound; Imports; investment exports; Pacific island countries; Pacific Islands; PIC economy; PIC export; PIC government; PIC growth rebound; Real exchange rates; remoteness; small states; trade pattern; Transportation; visitor arrival; volatility; WP

IMF Working Paper No. 2013/104 (May 9, 2013), Pages: 44, DOI: https://doi.org/10.5089/9781484399040.001, ISBN: 9781484399040, ISSN: 1018-5941.