Pacific island economies : some observations on the economic consequences of natural disasters

Abstract

The many difficult development problems faced by small resource-poor island countries such as those in the South Pacific, are all too familiar. Certainly, with small Pacific island countries the leading constraint is vulnerability to external shocks that can lead to economic collapse. Collapsibility can arise either from a sudden loss of export markets or a sharp decline in the terms of trade, and can lead to a drastic decline in GDP and export earnings and prolonged economic stagnation. Other major disturbances can arise from a political crisis ( e.g., Fiji 1987); the exhaustion of a major non-renewable export product (e.g., Kiribati 1979); crop destruction by insects or viral disease (e.g., Western Samoa 1993). As well, economic collapse can arise from periodic natural disasters such as cyclones and prolonged drought. Valuable insights into the economic collapsibility of small island countries in the Pacific can be found in recent works by Tisdell (1985), Kakazu (1985) and Fairbairn (1987). By means of simple growth models, these authors show that small island countries are incapable of sustainable growth because of vulnerability to external shocks, particularly a collapse in export demand combined with population growth. The analyses come out in favour of development policies that, among other things, encourage subsistence production as a sheet -anchor for these economies. The aim of this paper is to address another potential source of economic collapsibility - natural hazards particularly in the form of highly destructive tropical cyclones. The paper focuses on the recent incidence of tropical cyclones in the South Pacific, the severity of the devastation to these economies, and the impact on growth and policy responses. Particular attention is given to the consequences of a recent cyclone in Western Samoa and a simple theoretical model is presented showing the effects of cyclone devastation. The paper is essentially an exploratory study aimed at highlighting some of the major economic costs to small resource-poor island economies.