Paradise Lost: The Cost of State Failure in the Pacific.

Globally, state failure is hugely costly. We estimate the total cost of failing states as being of the order of $276bn per year although of course any estimate is inevitably highly imprecise. In this paper we apply our global framework and methodology to analyse the cost of failing states in the Pacific Ocean. Globally, failing states on average inflict very large costs on their neighbours. This both requires and justifies regional intervention in decision processes that would normally be the sovereign domain of nation states. Our analysis suggests those failing states that are islands are distinctive in that they do not have neighbours in this economic sense. In this respect the Pacific region differs from other regions: since its countries are islands the neighbourhood spillovers that normally generate these costs do not apply. Due to the lack of spillovers we estimate the cost of state failure for an island is much lower than for other states, being of the order of $36bn. However, our results also indicate that state failure is more costly to the state itself, as opposed to its neighbours, if the state is an island. This may be due to the greater openness of islands, implying greater flight of financial and human capital. We conclude that because neighbours are not directly affected by state failure in the Pacific, any possible interventions should be centred on the humanitarian concern rather than be guided by self-interest of the other countries within the Pacific region