The Impact of Exogenous Shocks on Households in the Pacific : A Micro-Simulation Analysis

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.

Bibliographic Details

Main Authors:	Cororaton, Caesar B., Knight, David S.
Language:	English en_US
Published:	World Bank Group, Washington, DC 2014-09
Subjects:	ABSOLUTE POVERTY, ADVERSE EFFECT, AGRICULTURAL COMMODITIES, AGRICULTURAL ECONOMICS, AGRICULTURAL LAND, AGRICULTURE, AVERAGE PRICE, BASIC FOODS, BASIC NEEDS, BEEF, BREAD, CASH CROP INCOME, CASH CROPS, CASH-CROP, CASSAVA, COCOA, COCOA PRICE, COFFEE PRICE, COFFEE PRICES, COMMODITY, COMMODITY PRICE, COMMODITY PRICES, COMPETITIVE MARKETS, COMPETITIVENESS, CONSUMER PRICE, CONSUMER PRICES, COOKING, COPRA PRICE, COPRA PRICES, COST OF LIVING, COST OF TRANSPORT, CRUDE OIL PRICE, CURRENT ACCOUNT BALANCE, DEMOGRAPHIC, DEVELOPING COUNTRIES, DEVELOPING COUNTRY, DOMESTIC ECONOMIES, DOMESTIC PRICES, ECONOMIC CRISIS, ECONOMIC GROWTH, ECONOMIC PERFORMANCE, ECONOMIC SHOCKS, ECONOMIES OF SCALE, EMPLOYMENT OPPORTUNITIES, ENERGY PRICES, EXCHANGE RATE, EXCHANGE RATE MOVEMENTS, EXCHANGE RATES, EXCISE TAX, EXISTING GOVERNMENT, EXPENDITURE, EXPORT MARKETS, EXPOSURE, EXPOSURE TO RISKS, EXTREME POVERTY, FARMERS, FATS, FEEDS, FINANCIAL CRISIS, FINANCIAL DERIVATIVES, FINANCIAL MARKETS, FIXED ASSET, FOOD COMMODITIES, FOOD CONSUMPTION, FOOD EXPENDITURE, FOOD IMPORTS, FOOD ITEMS, FOOD PRICE, FOOD PRICES, FOOD RESOURCES, FOOD SECURITY, FOOD STAPLES, FOOD TRANSPORT, FOODSTUFF, FREIGHT, FREIGHT COSTS, FRUIT, FRUITS, FUEL, FUEL COSTS, FUEL PRICE, FUEL PRICE INCREASES, FUEL PRICES, FUTURE PRICES, GLOBAL ECONOMIC PROSPECTS, GLOBAL FOOD SECURITY, GROWTH RATES, HIGH TRANSPORTATION, HOUSEHOLD INCOME, HOUSEHOLD SIZE, HOUSEHOLD VULNERABILITY, HOUSEHOLD WELFARE, IDIOSYNCRATIC SHOCKS, IMPACT OF SHOCKS, INCOME GROWTH, INCOME RISK, INCOMES, INEQUALITY, INFLATION, INFORMATION SERVICES, INSURANCE, INSURANCE POLICIES, INTERNATIONAL CRUDE OIL, INTERNATIONAL MARKET, INTERNATIONAL TRADE, LACK OF INFORMATION, MACROECONOMIC POLICIES, MARKET ACCESS, MARKET PRICE, MARKET PRICES, MEAT, MONETARY POLICY, MONOPOLIES, NATIONAL POVERTY, NATIONAL POVERTY LINE, NATIONAL POVERTY LINES, NATURAL RESOURCE, NATURAL RESOURCES, PALM OIL, PEAK INFLATION, PETROLEUM PRODUCTS, POOR, POOR HOUSEHOLDS, POTATO, POVERTY GAP, POVERTY IMPACT, POVERTY INDICATORS, POVERTY LINE, POVERTY REDUCTION, POVERTY SEVERITY, PRICE BEHAVIOR, PRICE CHANGE, PRICE CHANGES, PRICE CONTROLS, PRICE DECREASE, PRICE FLOOR, PRICE INCENTIVES, PRICE INCREASE, PRICE INCREASES, PRICE RISK, PRICE TREND, PRICE TRENDS, PRICE VARIATION, PRICE VARIATIONS, PRICE VOLATILITY, PRIVATE TRANSFERS, PRODUCER PRICE, PRODUCER PRICES, PROFIT MARGINS, PUBLIC TRANSPORT, PURCHASING, REMOTE LOCATION, RENEWABLE ENERGY, RISK MANAGEMENT, RISK REDUCTION, ROAD, ROAD CONNECTIONS, RURAL, RURAL AREAS, RURAL HOUSEHOLD, RURAL HOUSEHOLDS, RURAL POOR, RURAL POPULATIONS, SAGO, SALES, SAVINGS, SMALL BUSINESSES, SMALL COUNTRIES, SOCIAL PROTECTION, STAPLE FOODS, SUBSTITUTE, SUBSTITUTION, SUGAR, SUPPLIERS, SUPPLY ELASTICITY, TAX RATES, TRANSPORT, TRANSPORT COSTS, TRANSPORT EXPENDITURE, TRANSPORT SECTOR, TRANSPORTATION COST, TRANSPORTATION COSTS, TREASURY, TRUE, VEGETABLES, VOLATILITY, WHEAT, WORLD DEVELOPMENT INDICATORS, YAM,
Online Access:	http://documents.worldbank.org/curated/en/2014/09/20233073/impact-exogenous-shocks-households-pacific-micro-simulation-analysis https://hdl.handle.net/10986/20371
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