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Global and Regional Spillovers to Pacific Island Countries

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  • Yiqun Wu
  • Patrizia Tumbarello
  • Niamh Sheridan

Abstract

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.

Suggested Citation

  • Yiqun Wu & Patrizia Tumbarello & Niamh Sheridan, 2012. "Global and Regional Spillovers to Pacific Island Countries," IMF Working Papers 12/154, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:12/154
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    References listed on IDEAS

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    1. Engle, Robert F. & Kroner, Kenneth F., 1995. "Multivariate Simultaneous Generalized ARCH," Econometric Theory, Cambridge University Press, vol. 11(01), pages 122-150, February.
    2. Abraham Abraham, 2002. "Testing the Random Walk Behavior and Efficiency of the Gulf Stock Markets," The Financial Review, Eastern Finance Association, vol. 37(3), pages 469-480, August.
    3. Nadeem Ilahi & Riham Shendy, 2008. "Do the Gulf Oil-Producing Countries Influence Regional Growth? The Impact of Financial and Remittance Flows," IMF Working Papers 08/167, International Monetary Fund.
    4. Basher, Syed A. & Sadorsky, Perry, 2006. "Oil price risk and emerging stock markets," Global Finance Journal, Elsevier, pages 224-251.
    5. Ibrahim A. Onour, 2007. "Impact of oil price volatility on Gulf Cooperation Council stock markets' return," OPEC Energy Review, Organization of the Petroleum Exporting Countries, vol. 31(3), pages 171-189, September.
    6. Hammoudeh, Shawkat M. & Yuan, Yuan & McAleer, Michael, 2009. "Shock and volatility spillovers among equity sectors of the Gulf Arab stock markets," The Quarterly Review of Economics and Finance, Elsevier, pages 829-842.
    7. Robert Engle, 2001. "GARCH 101: The Use of ARCH/GARCH Models in Applied Econometrics," Journal of Economic Perspectives, American Economic Association, vol. 15(4), pages 157-168, Fall.
    8. Nandha, Mohan & Faff, Robert, 2008. "Does oil move equity prices? A global view," Energy Economics, Elsevier, vol. 30(3), pages 986-997, May.
    9. Heiko Hesse & Tigran Poghosyan, 2009. "Oil Prices and Bank Profitability; Evidence From Major Oil-Exporting Countries in the Middle East and North Africa," IMF Working Papers 09/220, International Monetary Fund.
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    Citations

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    Cited by:

    1. Asian Development Bank (ADB) & Asian Development Bank (ADB) & Asian Development Bank (ADB) & Asian Development Bank (ADB), 2015. "Making Money Work: Financing a Sustainable Future in Asia and the Pacific (Main Report)," ADB Reports RPT157446-2, Asian Development Bank (ADB).
    2. Chris Becker, 2012. "Small Island States in the Pacific; the Tyranny of Distance," IMF Working Papers 12/223, International Monetary Fund.
    3. Patrizia Tumbarello & Ezequiel Cabezon & Yiqun Wu, 2013. "Are the Asia and Pacific Small States Different from Other Small States?," IMF Working Papers 13/123, International Monetary Fund.
    4. Asian Development Bank Institute, 2017. "Making Money Work: Financing a Sustainable Future in Asia and the Pacific," Working Papers id:11892, eSocialSciences.
    5. Fazurin Jamaludin & Vladimir Klyuev & Anuk Serechetapongse, 2015. "What Drives Interest Rate Spreads in Pacific Island Countries? An Empirical Investigation," IMF Working Papers 15/96, International Monetary Fund.
    6. Hong Chen & Lanieta Rauqeuqe & Shiu raj Singh & Yiqun Wu & Yongzheng Yang, 2014. "Pacific Island Countries; In Search of a Trade Strategy," IMF Working Papers 14/158, International Monetary Fund.

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