Commodity export revenue growth in the south pacific Island nations: An application of error‐correction mechanisms

Abstract

Abstract The claim held by the policy‐makers of the South Pacific island nations that commodity export revenue growth is influenced by external rather than domestic factors is analysed empirically. Though the claim is based on scanty empirical evidence, it has resulted in the formulation of major policies in terms of commodity‐specific price stabilization schemes. Given available data sets on external factors (world GDP of major trading partners and world agricultural commodity prices) and domestic factors (country GDP and exchange rates), export revenue growth is analysed using error‐correction models based on co‐integration results. The main empirical evidence indicates that the error‐correction mechanisms were significant, although this varied among countries, factors and factor combinations. In addition to external market factors, domestic factors were found to have quite significant influence on the growth of exports. This was shown to be more important, particularly in Fiji.