Terms of Trade Shocks and the Current Account in Small Island Developing States

Amelia Santos-Paulino

Journal of Development Studies, 2010, vol. 46, issue 5, 855-876

Abstract: The paper investigates the dynamic relationship between external and internal shocks and the current account in selected small islands developing states. External shocks, defined as terms of trade fluctuations, explain a significant proportion of the variation in the current account balances. The external shocks have a temporary negative impact on the current account balances with a subsequent improvement, generating a J-curve type reaction. In contrast, real output shocks have a positive and significant effect on the current account.

Date: 2010
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DOI: 10.1080/00220381003623830

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