Aid, mining development and structural adjustment in Papua New Guinea

Abstract

Papua New Guinea is a country endowed with abundant natural resources. The natural resource sector accounts for over 40 per cent of GDP. The country has a relatively small population of 4.6 million people, inhabiting a large land mass and substantial coastline. Despite the immense potential, its development record since independence from Australia in 1976 has been rather disappointing. The economy of Papua New Guinea has gone through a series of external shocks, starting with the Bougainville war in 1989. Successive governments have responded to the ensuing crises with a series of structural reforms, the latest of which was implemented in 2000. The purpose of this paper is to evaluate the combined macroeconomic impacts of aid flows, increased mining output and the structural reforms. The simulation results indicate that there is an increase in real output, exports and employment. However, there is a reduction in the output of services (education, health and government adminstration and defence).

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