Economic Paper

English
ISSN: 
2310-1385 (online)
http://dx.doi.org/10.14217/23101385
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This series examines current economic issues from a Commonwealth perspective. The titles in the series are technical papers of topical interest to specialists concerned with trade, micro and macroeconomics, development economics and related subjects.
 
Supporting Investment and Private Sector Development in Times of Crisis

Supporting Investment and Private Sector Development in Times of Crisis

Strategies for Small States You do not have access to this content

English
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    http://oecd.metastore.ingenta.com/content/0810151e.pdf
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Author(s):
Dirk Willem te Velde, Isabella Massa, Massimiliano Calì
01 Apr 2010
Pages:
60
ISBN:
9781848590663 (PDF)
http://dx.doi.org/10.14217/9781849290173-en

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Small states are vulnerable to the effects of the global financial crisis because of their high dependence on foreign direct investment, the importance for them of export earnings, and high levels of remittances and aid flows. The crisis thus also in turn affects investment and private sector development. This Economic Paper examines the effects of the crisis on three countries: Mauritius, St Lucia and Vanuatu. Only Vanuatu is relatively resilient so far, with the effects on investment in Mauritius and St Lucia being dramatic, though affecting different sectors in each country. The policy responses followed also differ markedly. The authors demonstrate once again the vulnerability of small states to shocks, and emphasise that they are often at the receiving end of global policies, particularly so in the context of the global financial crisis. They argue that more could be done to clarify and address the greater vulnerability of many small states.
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  • Summary

    Small and open states are vulnerable to external shocks; they are especially vulnerable to global financial crises, not so much because of extensive financial contagion, but because of the real effects caused by high dependence on foreign direct investment (FDI), concentration on exports, and a high level of remittances and aid flows. This affects investment and private sector development both directly and indirectly.

  • Introduction

    Global financial crises appear to affect small and open developing countries more than other developing countries, yet little attention has been paid to the special circumstances of small states in international discussions of the recent crisis, including at meetings of the G-20 and the UN. Policy responses in the small states themselves also vary widely. This paper will discuss the effects of the recent global financial crisis on small states through the transmission belts identified in te Velde et al. (2009), such as private financial flows, trade, remittances and aid; these are the key channels through which financial crises affect investment and private sector development. The paper will also analyse policy responses at national and global level which have attempted to address the crisis.

  • The Global Financial Crisis, Investment and Private Sector Development in Small States

    The global financial crisis affects the prospects for investment and private sector development through a number of key transmission belts. In order to understand how private investment might be affected by the crisis, we need to understand how these work.

  • The Effects of the Global Financial Crisis on Small States

    This chapter reviews the effects of the global financial crisis on small states, focusing on investment, both FDI (section 3.1) and domestic credit (section 3.2), and remittances (section 3.3). It also covers the effects on trade (section 3.4) and aid (section 3.5).

  • The Global Financial Crisis, Investment and Private Sector Development in Small States: Mauritius, St Lucia and Vanuatu

    This section explores in more detail some of the effects of the global financial crisis and policy responses in three small states: Mauritius, St Lucia and Vanuatu.

  • Global Policies, the Global Financial Crisis and Private Sector Development in Small States

    Small states are often at the receiving end of global policies, particularly so in the context of the global financial crisis. For instance, they have not had representation at the G-20 discussions, although Africa had three representatives at the table at the London summit in April 2009. This section discusses how global policies (at the G-20, the UN and international financial institutions) may relate to small states.

  • Conclusions and Implications

    Overall, the effects of the crisis will be serious for most small and open states. Many small states are vulnerable to the effects of the global financial crisis not necessarily because of financial contagion but through real effects due to high dependence on FDI, concentration in exports, and reliance on high remittances and aid. The effects have already become visible in the area of remittances and FDI, especially in relation to tourism, financial services and real estate, which have been recent drivers of growth in small states. This will affect investment and private sector investment.

  • References and notes
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