Global and Regional Spillovers to Pacific Island Countries

By Yiqun Wu, Patrizia Tumbarello, Niamh Sheridan

June 1, 2012

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Yiqun Wu, Patrizia Tumbarello, and Niamh Sheridan. Global and Regional Spillovers to Pacific Island Countries, (USA: International Monetary Fund, 2012) accessed November 21, 2024

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.

Subject: Balance of payments, Banking, Commercial banks, Commodities, Extra-budgetary funds, Financial institutions, Financial sector policy and analysis, Public financial management (PFM), Remittances, Spillovers

Keywords: Australia and New Zealand, Business cycle, Commercial banks, Commodity, Commodity exporter, Commodity importer, Commodity price, Commodity prices, Downside scenarios, Extra-budgetary funds, Global, IMF staff calculation, Pacific island country, Pacific islands, PIC importer, Remittances, Spillover, Spillovers, WP

Publication Details

Pages:

41
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2012/154
Stock No:

WPIEA2012154
ISBN:

9781475504491
ISSN:

1018-5941

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