Lino Briguglio
Many small island developing states (SIDS) face special disadvantages associated with small size, insularity, remoteness and proneness to natural disasters. These factors render the economies of these states very vulnerable to forces outside their control, a condition which sometimes threatens their very economic viability. Many times the GDP (or GNP) per capita of these states is such that it conceals this reality. The major vulnerabilities faced by SIDS have been quantified in the form of an index by Lino Briguglio in his article 'Small Island Developing States and their Economic Vulnerabilities' published in World Development Vol. 23 (9): 1615-1632. The index is not intended as a yardstick of poverty as such, but as a measurement of the lack of economic resilience arising from the relative inability of a small island state to shelter itself from forces outside its control.
THE VARIABLES INCLUDED IN THE INDEX
The Vulnerability Index consists of three sub-indices, measuring (1) exposure to foreign economic conditions, (2) insularity and remoteness, and (3) proneness to natural disasters. It is hypothesized that the higher the incidence of these three variables in a given country, the higher is the degree of vulnerability in the same country, everything else, including GDP per capita, remaining constant.
Exposure to foreign economic conditions
The degree of exposure to foreign economic conditions is related to economic vulnerability because the higher the degree of such exposure, the more developments within the country will become determined by foreign economic conditions, thereby decreasing the country's capacity to control its own destiny. This sub-index was based on the degree to which an economy depends on foreign trade (exports and imports). Table 1 gives a summary of the overall tendency of SIDS' dependence on exports and imports.
The table shows that the highest ratios of exports and imports pertain to SIDS, whereas developed countries have the lowest ratios.
It is emphasized here that the index of economic exposure is not intended to measure poverty or underdevelopment. As a matter of fact, correlation of this index with GDP per capita was not found to be statistically significant. In other words. countries with a high GDP per capita, as well as those with a low GDP per capita could have a high index of exposure to what happens in the rest of the world.
Remoteness and insularity
The disadvantages associated with remoteness and insularity are well known and mostly related to transport cost indivisibilities in foreign trade. The problem with remoteness and insularity is that these variables cannot be measured directly in a meaningful way. For example, it may be suggested that remoteness can be measured by taking the number of kilometres from a main commercial centre, the nearest island or the nearest continent. An isolation index of this type might however be misleading in measuring remoteness for economic purposes, because the nearest island or continent, or the nearest main commercial centre may not be the one with which the country in question has its most important trade relations. In the case of many islands, a relatively large proportion of international trade is directed to and from their ex-colonizing powers, even though other centres of commercial activity could be more proximate.
The variable which is thought to capture the effect of insularity and remoteness is ratio of transport and freight costs to exports proceeds. Table 2 shows that SIDS tend to have a higher ratio of expenditure on transport than non-island countries.
As was the case with the economic exposure variables, the correlation coefficient between relative transport costs and GDP per capita indicates that GDP per capita does not capture the effect of remoteness.
Disaster proneness
Disaster proneness is associated with economic vulnerability because, amongst other things, disasters create additional costs and divert resources away from directly productive activities. In small islands, they may disrupt the whole economy.
The data for constructing the sub-index of disaster proneness was derived from a 1990 report published by UNDRO (Preliminary Study on the Identification of Disaster-Prone Countries, Based on Economic Impact, Geneva, 1990) which contains a wealth of information in this regard. Disaster damage is calculated as money damage in relation to the GDP of the country concerned. Non-significant disasters were excluded, a significant disaster being defined as one which has an impact of at least 1% of GDP. The period covered by the report is 1970 to 1989 and the disasters covered included droughts, floods, earthquakes, hurricanes, cyclones, storms, typhoons, fire, volcanic eruptions, famine, landslide, accident, power shortage, epidemic and civil strife. By excluding disasters of a political nature, the index is refined to make it more directly related to natural disaster proneness. Table 3 shows that, according to this index, SIDS tend to be more disaster prone than other countries.
Again here, no significant correlation was found between the disaster proneness and GDP per capita, indicating that disaster proneness is not statistically connected with poverty.
Other variables
There are variables other than size, remoteness and disaster proneness that are often associated with vulnerability. Three such variables are environmental fragility, dependence on foreign sources of finance and demographic changes. However, these three variables were rejected on two main grounds:
(a) Non-measurability. This applies to environmental fragility. Although some environment indices exist (see for example UNEP 1991), the data they convey is not suitable for the purpose of our index.
(b) Correlation with GNP per capita. This applies to indices related to dependence on international financial transfers (remittances and international aid) and to out-ward migration. These tend to be related to the economic performance of the country concerned. These were left out because, as stated above, the object of the vulnerability index is to measure not economic performance, but economic fragility in the face of external forces.
THE VULNERABILITY INDEX
The variables just described were standardized1 and the Vulnerability Index was computed as an average of the three sub-indices.2 The results clearly indicate that of the 114 countries for which data was available, ranked according to Economic Vulnerability, SIDS tended to be the most vulnerable, compared to other country categories. This is clearly shown in Table 4 which gives average scores of the Vulnerability Index.
CONCLUSION
Although the Vulnerability Index just described has a number of weaknesses, especially because of the subjective criteria on which the variables were chosen and because no consideration was given to environmental fragility, there are a number of benefits that can be derived from the index. These include:
(a) the index can attract attention towards the issue of vulnerability of certain economies, in particular those of SIDS;
(b) it presents a single-value measure of vulnerability based on meaningful criteria which can be considered by donor countries and organizations when making decisions regarding the allocation of financial aid and technical assistance.
It must be emphasized that the high vulnerability scores of SIDS produced in the Vulnerability Index must not be construed as a suggestion that SIDS should be complacent and not attempt to mitigate the effects of their vulnerabilities. The report of the General Secretary of United Nations, relating to Island Developing Countries (A/47/414, 1992, pp. 19-23) lists a number of policy options available to SIDS in this regard. These include: (a) improved flexibility to enhance the countries' ability to withstand external shocks; (b) improved ability to compete, through niche filling export strategy, flexible specialization, enhanced entrepreneurship and economic deregulation; (c) institutional changes for capacity building; and (d) regional technical cooperation to reduce certain per unit costs which tend to be high in a small state.
Additional recommendations, related to environmental vulnerability, are included in UNCED's Agenda 21, Chapter 17G. These include (a) the development of management techniques suitable to the special characteristics of small islands; (b) the undertaking of appropriate institutional reforms essential to effective implementation of sustainable development; and (c) the promotion of environmentally sound technology.
Although, as stated, SIDS should take action to help themselves, the fact will still remain that these countries tend to have limited options to cope effectively with their intrinsic economic and environmental vulnerabilities. Thus, the cooperation of the international community is called for in this regard.
NOTES
1The variables were to render the index insensitive to the scale of measurement of the different variables. The standardization method which is used in this study is based on the following formula:
Vij = (Xij - Min Xi) / (Max Xi - Min Xi) i = 1,2,3; j = 1,2,...,114.
where Vij stands for the degree of vulnerability arising from the ith variable for country j; Xij stands for the value of the ith variable included in the vulnerability index, for country j; Max Xi and Min Xi stand for the maximum and minimum value of the ith variable for all countries in the index. If a given country's vulnerability variable takes a value of Xij equal to the minimum value of that same variable, the value for Vij would be zero, and this would correspond to minimum vulnerability arising from that same variable. On the other hand, the greater the gap between the reading of a particular country's vulnerability variable and the minimum value of that same variable, the higher will be the value of Vij, so that the country with the maximum value would have a vulnerability score of 1with respect to that variable. In this manner, the index would take a value of between 0 and 1.
2 The vulnerability index is made of three sub-indices and represents some sort of average of the three sub-indices. The simplest method of combining the effect of the sub-indices is taking a simple average. This would be an equally weighted index. Such an approach has been used in constructing the Physical Quality of Life Index and the UNDP Human Development Index. An alternative is to use different weights for each variable, on the assumption that the different variables have a different impact on vulnerability. Unfortunately, in the case of the Vulnerability Index, there is no way in which such weights can be established on a priori grounds or on statistical grounds. The best one can do in this case is to assume different weights and compare the results. Briguglio (1995) experimented with two sets of weights. The first is an equally weighted index. The second assigns 50% weight to economic exposure, 40% to the transport index and 10% to the disaster proneness index. The results indicate that SIDS tend to be the most economically vulnerable group of countries.