“External Debt and Growth in Pacific Island Countries
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.
Volume (Year): 61 (2008)
Issue (Month): 4 ()
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