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“External Debt and Growth in Pacific Island Countries

Author

Listed:
  • Jayaraman, Tiru K.

    () (University of the South Pacific, Faculty of Business and Economics, School of Economics)

  • Choong, Chee-Keong

    () (University Tunku Abdul Rahman, Faculty of Accountancy and Management, Department of Economics)

Abstract

This paper examines the relationship between external debt and economic growth in Fiji during a 30-year period (1970-2005). Applying the bound testing approach of Pesaran et al., (2001), it is found that the long-run relationship runs from external debt to economic growth. Whilst both external debt and budget deficit had a negative impact on economic growth, exports of goods and services positively influenced growth. The Granger causality test results reveal the existence in the short-run of a bi-directional linkage between external debt and growth. The study conclusion is that Fiji would benefit from channeling its future external borrowings into activities promoting exports of goods and services, in which the country has a clear comparative advantage, rather than for consumption; by so doing the likelihood of any debt overhang can be avoided.

Suggested Citation

  • Jayaraman, Tiru K. & Choong, Chee-Keong, 2008. "“External Debt and Growth in Pacific Island Countries," Economia Internazionale / International Economics, Camera di Commercio Industria Artigianato Agricoltura di Genova, vol. 61(4), pages 711-728.
  • Handle: RePEc:ris:ecoint:0020
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    Keywords

    External Debt; Economic Growth; Exports; Bound Test; Causality; Debt Overhang;

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus

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