This paper seeks to document key characteristics of small island states in the Pacific. It restricts itself to a limited number of indicators which are macro-orientated - population, fertility of land, ability to tap into economies of scale, income, and geographic isolation. It leaves aside equally important but more micro-orientated variables and development indicators. We show that small island states in the Pacific are different from countries in other regional groupings in that they are extremely isolated and have limited scope to tap economies of scale due to small populations. They often have little arable land. There is empirical evidence to suggest that these factors are related to income growth.
this relationship for the smallstatesample and plots a simple trend line, which admittedly has only weak explanatory power. The Asia-Pacific region is again highlighted by a darker color.
Figure 2: Relationship between Population and GNI
GNI, US$ million
Source: World Bank, author’s calculations
Since population is only one of many factors that determine income, the distribution of countries around the trend is relatively wide. Indeed, there appears to be a tendency to deviate further as population increases. Several outliers to the relationship are
Government debt in many small states has risen beyond sustainable levels and some governments are considering fiscal consolidation. This paper estimates fiscal policy multipliers for small states using two distinct models: an empirical forecast error model with data from 23 small states across the world; and a Dynamic Stochastic General Equilibrium (DSGE) model calibrated to a hypothetical small state’s economy. The results suggest that fiscal policy using government current primary spending is ineffective, but using government investment is very potent in small states in affecting the level of their GDP over the medium term. These results are robust to different model specifications and characteristics of small states. Inability to affect GDP using current primary spending could be frustrating for policymakers when an expansionary policy is needed, but encouraging at the current juncture when many governments are considering fiscal consolidation. For the short term, however, multipliers for government current primary spending are larger and affected by imports as share of GDP, level of government debt, and position of the economy in the business cycle, among other factors.
Using a new fiscal dataset for small states, this paper analyzes the link between country size, government size, debt, and economic performance. It finds that on average small states have larger governments and higher public debt. Although there are intrinsic factors that explain why governments are bigger in small states, those with smaller governments and lower public debt tend to grow faster and are less vulnerable. Large fiscal adjustments, primarily through expenditure restraint, can underpin growth, although sometimes other elements can also impact. Since better governance is associated with lower debt, fiscal adjustment should be supported by governance improvements.
operational guidance to staff on reserve adequacy discussions in the IMF’s bilateral and multilateral surveillance. It is based on the views presented in the policy paper Assessing Reserve Adequacy—Specific Proposals and the related Board discussion. The note addresses key issues related to Staff’s advice on the assessment of the adequacy of reserves and related items, including answering the following questions: What is the expected coverage of reserve issues at different stages of the bilateral surveillance process (Policy Note, mission, and Staff Report)? Which reserve adequacy tools best fit different economies based on their financial maturity, economic flexibility, and market access? What do possible reserve needs in mature markets relate to, and how can their adequacy be assessed? How can reserve adequacy discussions for emerging and deepening financial markets be tailored and applied to better evaluate reserve levels in: (i) commodity-intensive economies; (ii) countries with capital flow management measures (CFMs); and (iii) partially and fully dollarized economies? What reserve adequacy considerations hold for countries with limited access to capital markets? How can metrics for these economies be tailored to evaluate their reserve needs? How should potential drains on reserves be covered? What are the various measures of the cost of reserves for countries with and without market access?
spending in response to lower tax revenues arising from slow growth. As a robustness check, we control for tax revenues and our results are robust.
We use annual data for 1990–2017 from the IMF’s World Economic Outlook (WEO) database. For our main empirical analysis, our smallstatesample is as per the IMF’s definition of small states (34 countries). We further limit our sample by excluding some countries based on (i) insufficient data, (ii) unreliable data (e.g. negative government investment as percent of GDP), 9 or (iii) extremely large
C. Fiscal Indicators
In comparing fiscal indicators from the small-statesample to the large-country one, it soon becomes clear that small states tend to have higher expenditure, weaker primary balances, and higher public debt.
Small states tend to have bigger governments than large countries, as measured by both average total expenditure and most expenditure subcategories ( Figure 1 ). 8 In 2004 total expenditures in small states were about 37 percent of GDP on average; there has been a marginal downward trend since the early 1990s
using average data for 2006–10. Country teams could use the updated coefficients for the resource-rich economies or the original coefficients reported in ARA (2011).
3 The empirical regression controlling for multiple economic classifications (e.g., smallstatesample with a dummy variable for resource-rich) did not yield significant results on the economic characteristic dummy while greater granularity with dual categories (e.g., small and fragile state sample) was constrained by sample size.
4 IV-B in IMF 2013 provides a simple approach to identify they
Reduction and Growth Trust. 4
Lacking Economies of Scale
Generally speaking, the relationship between population and total income appears to be positive. This is not surprising given that labor is a major input into the production process and a larger workforce can produce a greater number of goods and services for higher total income. Figure 9.2 shows this relationship for the smallstatesample and plots a simple trend line, which, admittedly, has only weak explanatory power. Asia and the Pacific is again highlighted by a darker color.