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External debt and economic growth in Pacific Island countries: A linear and nonlinear analysis of Fiji Islands

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  • Makun, Keshmeer

Abstract

This paper studies the relationship between economic growth and external debt in Fiji between 1980 and 2018. Using the neoclassical growth framework and ARDL models, we trace out long run linear and nonlinear association among the variables. The results show that in the long-run linear measure of external debt has a negative effect on economic growth. A nonlinear analysis reveals an asymmetric outcome of external debt on economic growth. Export and total factor productivity as key economic control variables contribute significantly to economic growth. An alternative specification with exogenous domestic debt produces consistent asymmetric results. External debt exerts a more strong negative effect on growth compared to domestic debt as indebtedness increases. Threshold analysis confirms that public debt becomes a drag on growth beyond a certain point. It is emphasized that the government should tone down the unproductive expenditure and exercise greater objectivity in fiscal management to stabilize the debt.

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  • Makun, Keshmeer, 2021. "External debt and economic growth in Pacific Island countries: A linear and nonlinear analysis of Fiji Islands," The Journal of Economic Asymmetries, Elsevier, vol. 23(C).
    • Handle: RePEc:eee:joecas:v:23:y:2021:i:c:s1703494921000025
    DOI: 10.1016/j.jeca.2021.e00197
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