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Effects of oil price and global demand shocks on small island developing states

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  • Alrick Campbell

Abstract

I employ a global VAR framework for 25 SIDS using annual data over the period 1980 to 2015. A key innovation associated with this research is the use of remittance weights to capture the close financial linkages between SIDS and advanced economies such as the US. I find that oil price shocks do not have a statistically significant negative effect on economic growth in most individual countries and different regions. Economies that are oil-intensive perform better than their low-intensity counterparts, but economic growth is likely to be greater if economies transition towards a more diversified energy supply mix. In terms of a negative demand shock to US GDP, output in SIDS decline more for those regions that have close economic ties with the US and are within its geographical proximity. From a policy standpoint, these results highlight the importance of gearing policy towards energy diversification and designing outward-oriented economic policies to guard against future oil price shocks.

Suggested Citation

  • Alrick Campbell, 2016. "Effects of oil price and global demand shocks on small island developing states," CAMA Working Papers 2016-67, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    • Handle: RePEc:een:camaaa:2016-67
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    File URL: https://cama.crawford.anu.edu.au/sites/default/files/publication/cama_crawford_anu_edu_au/2016-11/67_2016_campbell.pdf
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    Keywords

    Global VAR (GVAR); Impulse Responses; Oil prices; Small Island Developing States;
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