ABSTRACT
This chapter examines the validity of the Dutch disease hypothesis in the Pacific island countries (PICs), through a panel data approach. It reviews the trends in aid and remittance inflows received by PICs. The chapter outlines the methodology adopted for the empirical investigation. It reviews the results and presents conclusions with policy implications. In the absence of data for a fairly long period of annual observations, which are necessary for meaningful analysis for each country, the investigation takes up a panel approach. The between-dimension tests are the group-mean cointegration tests, which allow for heterogeneity of parameters across countries. With the growing interest of cross-country data over time especially in empirical macroeconomic, the focus of panel data econometrics has shifted towards the stationary and cointegration dimensions. The fully modified Overall Life Satisfaction procedure accommodates the heterogeneity that is typically present both in the transitional serial correlation dynamics and in the long run cointegrating relationships.
