Income and consumption smoothing and welfare gains across Pacific Island countries: The role of remittances and foreign aid
AbstractWe examine the potential welfare gains and channels of income smoothing for Pacific Island Countries (PICs) and nd that, under full risk sharing overall welfare gains across all PICs (particularly, Kiribati, Palau, and Papua New Guinea) are at desirable levels. However, for Australia, the potential welfare gain from risk sharing is almost similar to the gain it obtains if Australia attains full risk sharing with the rest of the OECD countries or with New Zealand alone. We also break down output using the framework of Sorensen and Yosha (1998) to quantify the extent and channels of risk sharing across PICs. For PICs, income-smoothing channels (net factor income and current transfers) play a significant role in buffering the output shock compared to the performance of those channels on smoothing the output shock for OECD countries. Domestic savings also smooth a fair portion of shocks to output, but the extent is much lower compared to that of OECD countries. Further, we analyze the effect of remittances and foreign aid on income smoothing for the PICs exclud- ing Australia and New Zealand. Income smoothing via remittances is highly volatile and significant in recent years, while foreign aid seems to be a stronger and more stable channel for smoothing domestic output shocks for PICs.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 29547.
Date of creation: 01 Mar 2010
Date of revision: 24 Feb 2011
Foreign Aid; Remittance In ows; International Integration; Income Smoothing; Consumption Smoothing; Pacic Island Countries; Welfare Gains from Risk Sharing;
Other versions of this item:
- Balli, Faruk & Balli, Hatice O., 2011. "Income and consumption smoothing and welfare gains across Pacific Island Countries: The role of remittances and foreign aid," Economic Modelling, Elsevier, vol. 28(4), pages 1642-1649, July.
- F15 - International Economics - - Trade - - - Economic Integration
- E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution
- E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-03-26 (All new papers)
- NEP-DEV-2011-03-26 (Development)
- NEP-MIG-2011-03-26 (Economics of Human Migration)
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