Resource information
This paper seeks to provide evidence on
the extent of household vulnerability to exogenous economic
shocks in the Pacific region and consider policy options
that help to manage this risk. Characteristics of the region
such as remoteness, small size, dispersion, and urbanizing
populations lead to pronounced vulnerabilities. The paper
presents macroeconomic and distributional analysis and
complements it with results of a micro-simulation model
customized for this work based on a model used previously by
the World Bank to analyze the impacts of the Food and Fuel
Price Crisis. The results of micro-simulations serve to
highlight the very high levels of economic vulnerability
faced in the region. Impacts of economic shocks are not
confined to well-off individuals, but have major impacts on
the poor. Even moderate shocks are likely to push sizeable
fractions of the population below the poverty line. The
shocks considered are not worst case scenarios, but those
that can and have occurred frequently. The results show that
households are hard hit by increases in oil prices,
especially in remote islands where freight costs are higher,
while countries on aggregate, and individual households, are
exposed to volatility in the prices of the one or two
imported food commodities that they depend on. Livelihoods
are also often driven by external demand. In particular,
many poor households in countries like Papua New Guinea have
livelihood strategies centered on cash crops. The results
point to the importance of helping households of the Pacific
to manage the risk inherent in their lives while prudently
using macroeconomic tools at the disposal of the government.
