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

Alrick Campbell

CAMA Working Papers from Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University

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.

Keywords: Global VAR (GVAR); Impulse Responses; Oil prices; Small Island Developing States (search for similar items in EconPapers)
Pages: 48 pages
Date: 2016-11
New Economics Papers: this item is included in nep-ene and nep-fdg
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Persistent link: https://EconPapers.repec.org/RePEc:een:camaaa:2016-67

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