Trouble in paradise? Savings and growth in Fiji, 1970-2001

Abstract

This article reviews Fiji's macroeconomic performance and assesses the relative significance of foreign exchange, domestic savings and public sector resources on Fiji's economic growth by formulating and estimating a three-gap model. The foreign exchange gap equation indicates a sharp tradeoff between investment and capacity utilization. The government savings constraint also appears to be binding. The model is then simulated for the period between 1997 and 2001 under four growth path 'scenarios' that make differing assumptions concerning Fiji's output, exports and capital flows. The results suggest that the external financing required to achieve a 'socially desirable' growth path is modest, amounting to an average of 3.5 percent of potential output.