Most small island economies or ?microstates? have distinctly different characteristics from larger developing economies. They are more open and vulnerable to external and environmental shocks, resulting in high output volatility. Most of them also suffer from locational disadvantages. Although a few small island economies have succeeded in generating sustained rapid growth and reducing poverty, most have dismal growth performance, resulting in high unemployment and poverty. Although macroeconomic policies play an important role in growth and poverty reduction, there has been very little work on the issue for small island economies or microstates. Most work follows the conventional framework and finds no or very little effectiveness of macroeconomic policies in stabilization. They also concentrate on short-run macroeconomic management with a focus almost entirely on either price stability or external balance. The presumption is that price stability and external balance are prerequisite for sustained rapid growth. This paper aims to provide a critical survey of the extant literature on macroeconomic policies for small island economies in light of the available evidence on their growth performance. Given the high output volatility and its impact on poverty, this paper will argue for a balance between price and output stabilization goals of macroeconomic policy mix. Drawing on the highly successful experience of Singapore, it will also outline a framework for growth promoting, pro-poor macroeconomic policies for small island economies/microstates.
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Paper provided by World Institute for Development Economic Research (UNU-WIDER) in its series Working Papers with number
RP2008/47.
References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
Vlad Pavlov & Craig Sugden, 2006.
"Aid and Growth in the Pacific Islands,"
Asian-Pacific Economic Literature,
2004 Asia Pacific School of Economics and Government, The Australian National University and Blackwell Publishing Asia Pty Ltd, vol. 20, pages 38-55, November.
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