Download economic vulnerability and resilience in small island developing state

ECONOMIC VULNERABILITY AND RESILIENCE
IN SMALL ISLAND DEVELOPING STATE
By Professor Robert Read
GLOBAL PLATFORM ON CLIMATE CHANGE, TRADE & SUSTAINABLE ENERGY
February 2010
EXECUTIVE SUMMARY
The economy of many developing
countries, and in particular of Small
Islands Developing States (SIDS) is
usually characterized by thin markets,
a lack of diversification in production, a
high degree of economic openness and
an excessive dependence on a narrow
range of exports and strategic imports.
Furthermore, these countries often face
the challenges of a rapidly growing
population, susceptibility to natural
disasters, lack of economies of scale,
remoteness, high transportation and
communication costs and costly public
administration and infrastructure.
For these reasons, the economies of
SIDS are usually highly vulnerable to
exogenous shocks such as; fluctuation of
commodity and energy prices, the erosion of
preferential market access, the introduction
of more stringent non-tariff barriers
(including rules of origins and sanitary and
phyto-sanitary conditions), and international
fluctuations of interest rates. Moreover, SIDS
are particularly vulnerable to the physical
impacts of climate change. Indeed, their
key economic sectors such as agriculture,
fisheries and tourism are among the most
susceptible to the impacts of climate
change. Therefore, climate change threatens
to exacerbate existing vulnerabilities and
be an obstacle to their socio-economic
development.
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In this situation, SIDS have to build their
economic resilience to cope with external
shocks. Economic resilience is the “ability
of an economy to recover from or adjust to
the negative impacts of adverse exogenous
shocks and to benefit from positive shocks”.
In order to build their economic resilience,
SIDS need to implement actions to improve
their competitiveness and enhance their
supply-side capacities, while targeting
environmental and social goals.
Trade, trade policy and rules can play an
important role in enhancing and/or limiting
the capacity to build economic resilience
and adaptive capacities in SIDS. Indeed,
through trade policy, countries could stop
subsidising polluting activities and provide
incentives for innovation and diffusion
of green technologies, such as nonrenewable energies. Currently, however,
many countries are largely subsidising
highly inefficient and polluting sources of
energy generation and/or “bad” agricultural
practices (from an environmental and/or
social perspective). Moreover, intellectual
property rights could play an important role
in stimulating innovation, especially in lowincome countries. Although deeper analysis
needs to be conducted, some research
highlights that for vulnerable developing
countries to diversify their production and
move up the value chain, certain IP rules will
need to become more flexible. Furthermore,
to prevent and respond to financial shocks,
the chapters on investment in the free-trade
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ECONOMIC VULNERABILITY AND RESILIENCE IN SMALL
ISLAND DEVELOPING STATE
By Professor Robert Read
agreements could contain precautionary
rules (e.g. Basel rules) and specific safeguard
clauses that could be activated when there
are serious indications of risk.
The aim of this issue paper is to explore how
trade policies and rules can contribute to
reduce the economic vulnerability of SIDS
and make them more resilient to external
shocks, through the enhancement of their
supply-side capacities and capacity to adapt
to climate change. The paper first defines
the concept of economic resilience and
climate change adaptation and identifies
the major characteristics and challenges
of SIDS with regard to international trade
and climate change. The paper then sets
up the links between economic resilience,
climate change adaptation and trade policy.
Finally, it discusses the role of trade policy
in facilitating and/or limiting economic
resilience and adaptation to climate change
in SIDS.
Professor Robert Read is Senior Lecturer at
the Department of Economics, Lancaster
University Management, UK.
ICTSD Programme on Competitiveness and
Sustainable Development, Issue paper No. 11,
February 2010.
The full study will be available at http://ictsd.
org/climate-change/adaptation/
Through trade policy, countries
could stop subsidising polluting
activities and provide incentives for
innovation and diffusion of green
technologies, such as non-renewable
energies.
1. Briguglio, Lino, Cordina, Gordon, Farrugia,
Nadia, and Vella Stephanie (May 2008). Economic
Vulnerability and Resilience. Concept and
Measurements. P.5, Research Paper No. 2008/55 United
Nations University, World Institute for Development
Economic Research.
ISSN: 1816-6970
ICTSD
www.ictsd.org