Resilience and Growth in the Small States of the Pacific
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Chapter 3. Building Resilience in the Pacific Island Countries

Author(s):
Hoe Khor, Roger Kronenberg, and Patrizia Tumbarello
Published Date:
August 2016
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Author(s)
Lino Briguglio

Many studies on small island states focus on their economic vulnerability and conclude that, as a group, these countries are highly exposed to the harmful effects of external shocks.1 This chapter shows this reality applies to the Pacific island countries (PICs).

Despite such exposure, GDP per capita in many small island states is relatively high compared to other developing economies. Briguglio (2004) termed this reality “the Singapore paradox,” referring to the possibility that a very vulnerable small country could actually be very successful economically. This chapter argues that the juxtaposition of economic vulnerability and economic resilience can explain this apparent contradiction.

Economic Vulnerability

The word “vulnerability” originates from its Latin root vulnerare, meaning “to wound.” This etymology associates the word with exposure to damage or harm and with precariousness. When applied to the macroeconomy, the term is generally used to refer to a country’s susceptibility to harm by external forces as a result of exposure to such forces. Several vulnerability indices have been constructed (Briguglio 1995, 1997, 2014; Atkins, Easter, and Mazzi 2000; Crowards 2000; Briguglio and Galea 2003; UNDESA 2011).2 The indices proposed in this chapter define vulnerability by the inherent features that expose countries to external shocks, including high trade openness exacerbated by high export concentration and dependence on strategic imports.

Most economic vulnerability indices conclude that small states, particularly island ones, tend to be more inherently economically vulnerable than other groups of countries, regardless of differences in the components of the indices and the approaches utilized. The literature shows a high degree of consensus in this regard. Seven out of the eight vulnerability indices reviewed in Cordina (2008) had statistically significant positive correlation coefficients between country size and vulnerability scores. This implies that, in general, the indices tend to agree that small countries are more economically vulnerable than larger ones.

Economic Resilience

The word “resilience” comes from resilire, Latin for “rise again.” Briguglio and others (2006) define economic resilience as an economy’s ability to withstand or rebound from the negative effects of external shocks, and the authors associate such ability with policy measures. Guided by this definition, they constructed a resilience index consisting of four components, namely macroeconomic stability, market efficiency, social development, and good political governance.3 These variables are, to a large extent, influenced by policy and are associated with an economy’s ability to absorb or counteract the harmful effects of external shocks. In general, the authors found that the 86 countries covered by the index exhibited a wide range of resilience scores, with high-income countries generally ranking higher in this regard than middle- and low-income countries. Briguglio (2014) confirms this tendency.

Juxtaposing Vulnerability and Resilience

According to Briguglio and others (2006), the juxtaposition of vulnerability and resilience would indicate an economy’s overall risk of harm by external shocks, as Figure 3.1 explains. It shows that such risk increases with economic vulnerability and decreases with economic resilience. A major implication of the vulnerability and resilience framework is that small states can succeed economically, despite their economic vulnerability, if they adopt policies conducive to good economic, social, and political governance.

Figure 3.1Risk of Harm by External Economic Shocks

Briguglio and others (2006), applying this framework and using the vulnerability and resilience indices they constructed, classified 86 countries into four categories, as Figure 3.2 shows. The results indicated that (1) countries with high resilience and low vulnerability scores are mostly large developed countries with relatively good economic, political, and social governance; (2) countries with low resilience and vulnerability scores are mostly large developing economies with relatively weak governance; (3) countries with high vulnerability and resilience scores are mostly small states with relatively good governance; and (4) countries with relatively high vulnerability and relatively low resilience scores include many small states with relatively weak governance. Briguglio (2014), covering 183 countries, confirmed these general tendencies.

Figure 3.2Vulnerability-Resilience Nexus

Because vulnerability refers to inherent characteristics that make countries prone to external shocks, vulnerability scores for a particular country should not differ much over time. It is therefore not expected that countries will move vertically along the quadrants of Figure 3.2, but they can move horizontally from the left to the right quadrant if they adopt measures that build resilience.

Defining vulnerability by inherent features and resilience by policy-induced changes has a number of advantages. First, the vulnerability index would refer to permanent (or quasi-permanent) features over which a country can exercise no practical control, and which, therefore, cannot be attributed to inadequate policies. In other words, countries scoring high on the index cannot be accused of self-inflicted vulnerability through misguided policy. Second, the resilience index would refer to what a country can do to mitigate or exacerbate its inherent vulnerability. Third, the combination of the two indices would indicate the overall risk of harm by external shocks owing to inherent vulnerability features counterbalanced to different extents by policy measures.

Vulnerability and Resilience of Pics

Briguglio (2014) constructed and computed vulnerability and resilience indices for 183 countries, including nine PICs,4 based on the methodology developed in Briguglio and others (2006). The nine PICs were all found to be highly economically vulnerable (with vulnerability index scores in the top 25 percent among 183 countries). Samoa topped the list, with Vanuatu taking second place.

In general, PICs tended to have very open economies not much different from the average for the rest of the small island developing economies.5 Their dependence on strategic imports was in general also on the high side, but slightly lower than the average for the rest of the small island developing economies. But PICs’ exports were in general markedly more concentrated than those of other small island developing economies.

In addition, four PICs (Fiji, Samoa, Tonga, Vanuatu) are highly prone to natural disasters. Their average vulnerability score was higher than the average for the rest of the small island developing economies, although individual country scores revealed many exceptions. On the whole, PICs’ vulnerability scores were much higher than the average score for non-small-island developing economies, whether high, middle, or low income, indicating that economic vulnerability is highly related to small size and insularity.

To measure resilience, Briguglio (2014) produced an economic resilience index, again using the methodology developed in Briguglio and others (2006), which indicated that the PICs’ resilience rankings were not on the high side, mainly because of their relatively low scores on political governance, social development, and environmental management. The macroeconomic stability scores were, on average, higher than the average for the rest of the small island developing economies, due to PICs’ lower debt ratios, among other things. Their average overall economic resilience index scores were about the same as those for the rest of the small island developing economies.

A correlation analysis between economic resilience index scores and country size indicated that these two variables are not related. But a statistically significant positive correlation exists between countries’ income per capita and resilience scores, suggesting that, as expected, countries with the best economic performance tend to be those with the highest resilience scores. It should be noted that these tendencies conceal considerable differences between individual countries in each grouping.

Briguglio (2014) classified the nine PICs according to the categories shown in Figure 3.2, and found that Fiji, Samoa, Tonga, and Vanuatu—countries that are highly economically vulnerable, with moderately well-governed economies—marginally fit in the northeast quadrant (that is, on the left side of that quadrant). In contrast, Kiribati, Marshall Islands, Micronesia, Papua New Guinea, and the Solomon Islands, which are also highly economically vulnerable, but with weaker resilience scores, fit marginally in the northwest quadrant (that is, on the right side of that quadrant).

Implications for Pics

The vulnerability and resilience framework just described has a number of implications for PICs and for small island developing states in general. The framework may be useful to support decision making in PICs, especially for setting policy direction and prioritizing resilience-building actions. In particular, the analysis can help to disseminate information on and draw attention to issues relating to resilience building, encourage quantitative estimation of resilience building, and promote the idea of integrated action in this regard. In general, the framework can foster a better understanding of the benefits of good political, economic, social, and environmental governance in a country’s efforts to better withstand and recover from external economic shocks.6

A major policy implication for PICs associated with this framework is that, in view of their high economic vulnerability, resilience building is very important for these states, and it therefore pays for them to embed resilience-building measures into their plans.

The framework has additional implications for attracting investment to small states. That is, everything else remaining equal, an economically well-governed country with political and social stability is more likely to attract both domestic and foreign investment than a badly governed and socially unstable country. Small states tend to be disadvantaged in attracting investment because of their small domestic markets and general difficulty in diversifying their economies. But good economic governance could partly make up for these inherent deficiencies.

Regional collaboration is also relevant to PICs. Largely because of the indivisibility of certain overhead costs, some regulatory frameworks required for good economic governance may be prohibitively expensive for a single small state on its own, but affordable regionally. For this reason PICs could benefit through further regional cooperation by jointly undertaking policy measures conducive to resilience building. Such cooperation could, for example, cover competition law and policy, telecommunications regulations, air and shipping services, and pooling of expertise for various purposes, including for international negotiations.

The high vulnerability scores of PICs also suggest that economic vulnerability is not often given due importance in development assistance, especially when these states are classified as middle-income countries, even though their vulnerability poses serious disadvantages. It would, therefore, be beneficial to vulnerable small island developing economies if donor countries and organizations devise development support schemes that effectively factor in a vulnerability criterion.7 This would be especially relevant when support is intended to strengthen the economic resilience of PICs.

Conclusion

The main message of this chapter is that even though small states tend to be economically vulnerable, that should not be construed as an argument for complacency among them. Rather, several resilience-building policy options can enable small states to minimize or withstand negative external economic shocks. This suggests in turn that small states should assign major importance to resilience-building policies and embed them in national plans and strategies.

The donor community, in its quest to support the economic development of small states, should likewise heed this message. Official development assistance and other forms of aid should include resilience building as an important motive for support to economically vulnerable states.

References

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1

Other characteristics of small states pose economic disadvantages but do not lead directly to economic exposure to external economic forces. These include a limited ability to exploit economies of scale—mainly because of overhead-cost indivisibilities associated with small-scale operations—as well as limitations in the effectiveness of domestic competition policy, owing to the ease with which a few firms can monopolize or dominate a small market. For many small states that are also islands, insularity, remoteness, dispersion (in archipelagoes), proneness to natural disasters, and vulnerability to climate change are associated with additional economic disadvantages.

2

Gonzales (2000) points out that, for various vulnerability classifications: “While small developing states on average emerge as being comparatively vulnerable, rankings of individual countries can differ substantially between alternative indices.”

3

Briguglio and others (2006) also identified environmental management as a possible component of their resilience index, but did not include it because of the lack of relevant data. An environmental management index was included as a resilience index component in Briguglio (2014).

4

The nine are Fiji, Kiribati, Marshall Islands, Micronesia, Papua New Guinea, Samoa, the Solomon Islands, Tonga, and Vanuatu. Data were insufficient to construct an economic vulnerability index for the Cook Islands, Nauru, Niue, Palau, and Tuvalu.

5

The comparator small island developing states were members of the Alliance of Small Island States: Antigua and Barbuda, The Bahamas, Barbados, Belize, Cabo Verde, Comoros, Dominica, Dominican Republic, Grenada, Guinea-Bissau, Guyana, Haiti, Jamaica, Maldives, Mauritius, São Tomé and Príncipe, Seychelles, Singapore, St. Kitts and Nevis, St. Lucia, St. Vincent and the Grenadines, Suriname, and Trinidad and Tobago. Timor-Leste was not included because of insufficient data.

6

The vulnerability and resilience framework proposed in Briguglio and others (2006) led to considerable interest among international organizations working in the interests of small states. This framework also formed the basis of work with the Commonwealth Secretariat to examine and develop a resilience framework, which led to vulnerability/resilience profiles in Seychelles, St. Lucia, and Vanuatu, as explained in Briguglio and others (2010). The vulnerability and resilience framework was also referred to in the report of the UN Secretary-General (http://www.un.org/ga/search/view_doc.asp?symbol=A/65/115&lang=E) on the occasion of the Five-Year Review of the Mauritius Strategy for the Further Implementation of the Program of Action for the Sustainable Development of Small Island Developing States. The United Nations Economic and Social Commission for Asia and the Pacific (ESCAP, ADB, and UNDP 2010) sought to assess the impact of the global financial crisis by developing a vulnerability index. Their report (Appendix 3) also cited the approach introduced in Briguglio and others (2006). The United Nations Department of Economic and Social Affairs, in preparation for the Third International Conference on Small Island Developing States in Samoa in 2014, has also embarked on developing a vulnerability-resilience framework, building on the approach pioneered by Briguglio and others (2006); see http://www.sids2014.org/content/documents/260attrdlu7.pdf.

7

The word “effectively” should be emphasized in this context. This is because even in the case of graduation from least-developed country status, where a vulnerability index is used as a criterion, its effect may be negligible due to the fact that economic vulnerability is just one of three graduation criteria, and graduation requires that a country fulfill at least two of the three criteria. In addition, if the national income per capita of a least-developed economy rises to a level at least double the graduation threshold, the country will be deemed eligible for graduation regardless of its performance under the other criteria. See UNCTAD (2013). On this issue, see also the statement by the Government of Maldives (2009).

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