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Income And Consumption Smoothing And Welfare Gains Across Pacific Island Countries: The Role Of Remittances And Foreign Aid

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Executive Summary

The authors examine the potential welfare gains and channels of income smoothing for Pacific Island Countries (PICs) and find that, under full risk sharing overall welfare gains across all PICs (particularly, Kiribati, Palau, and Papua New Guinea) are at desirable levels. However, for Australia, the potential welfare gain from risk sharing is almost similar to the gain it obtains if Australia attains full risk sharing with the rest of the OECD countries or with New Zealand alone. They also break down output using the framework of Sorensen and Yosha (1998) to quantify the extent and channels of risk sharing across PICs.

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