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An econometric model of the determinants of private investment and a CGE model of the impact of democracy on investment and economic growth in Fiji

  • Paresh Kumar Narayan

Purpose – The purpose of this paper is to construct an econometric model of the determinants of private investment with a particular focus on the impact of democracy on investment. Design/methodology/approach – The first step was to econometrically derive the long-run elasticities; then to modify the Fiji computable general equilibrium (CGE) model to incorporate the investment function. Also the econometrically derived long run elasticities in the CGE model were used. Findings – It was found that democracy has a positive and statistically significant impact on private investment in Fiji. The paper's simulation of Fiji becoming a fully democratic country on investment and other macroeconomic fundamentals, based on a CGE model, reveals that real gross domestic product and real national welfare increase by around 0.01 and 0.05 per cent, respectively; government savings and revenue performance improves; there is a trade balance surplus; and both private consumption and disposable income increase by around 0.05 and 0.12 per cent, respectively. Originality/value – This is the first study that uses a CGE model to examine the impact of democracy, via investment, on other macroeconomic fundaments. No other study is known to have modelled democracy in a CGE framework.

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Article provided by Emerald Group Publishing in its journal International Journal of Social Economics.

Volume (Year): 35 (2008)
Issue (Month): 12 (October)
Pages: 1017-1031

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Handle: RePEc:eme:ijsepp:v:35:y:2008:i:12:p:1017-1031
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