Modelling the impact of COVID-19 in small pacific island countries

This paper studies the economic impact of COVID-19 in Fiji, Tonga, and Vanuatu. The UNWTO’s International Tourism 2020 Scenarios and the World Bank’s projected decline in remittance flows are treated as negative COVID-19 led shocks in the nonlinear autoregressive distributed lag (NARDL) model. Negative tourism shocks are significant for all three countries, whereas negative remittance shocks are significant for Tonga only. Thus, the economic effects of COVID-19 are propagated by tourism for all three countries, whilst remittance is a COVID-19 transmission channel for Tonga only. Simulations with the projected declines in tourism and remittances suggest that Vanuatu would experience the greatest decline in growth and highest uncertainty, whilst Tonga would face the lowest decline and uncertainty.