Abstract
The previous studies of exports performance in Fiji were carried out at the aggregate level. We conduct a disaggregated analysis of exports of three major products, namely, sugar, tourism, and gold. This analysis is useful for developing sector-based export promotion policies. The long run as well as dynamic export demand functions are estimated at the aggregate and disaggregate levels. The results identify a number of factors such as trading partner income, relative prices, productivity shocks, natural disasters, political disturbances, and the exchange rate that affect the export demand for sugar, tourism, and gold, though not in the same way. For instance, tourism and sugar enjoy the highest income elasticity. Sugar export is adversely affected by natural calamities and political upheavals. The political upheavals also affect tourism adversely in Fiji. The exchange rate affects the export of sugar more than others. The idea that devaluation will promote exports in Fiji needs careful investigation because results show that this will happen with a high cost, i.e. 5% nominal devaluation will be required to increase real exports by 1%.
Highlights
Fiji is a Small and Vulnerable Economy (SVE)1 in the pacific region
The results presented in Sami (2020) suggest that temporary measures to increase sugar export earnings will mostly be ineffective because the export earnings will not revert to its equilibrium path and the impacts will be transmitted to other related variables and sectors
The trade weights are used to estimate a weighted exchange rate, which closely resembles Fiji’s nominal effective exchange rate, whereby a rise in E represents a depreciation of the Fiji dollar
Summary
Fiji is a Small and Vulnerable Economy (SVE) in the pacific region. It is a member of the World Trade Organization (WTO) and is a signatory to most regional trade agreements such as PICTA (with regional countries), PACER-plus (regional, including Australia and New Zealand), the MSG (with Melanesian group of countries in the region), and Investment Fiji (2020a). It might be better to clarify that despite weak commodity exports, Fiji has been able to reduce the twin deficit in the last couple of years with a healthy foreign exchange reserves position This has been a result of increased international incomes from remittances, tourism earnings, and official development assistance. Empirical modelling of trade comprises global trade analysis (GTAP), export demand functions, and gravity models.4 Pratt (2014) has used Computable General Equilibrium (CGE) to explain the economic impact of devaluation on tourism in Fiji under a small open market economy set-up. Our present paper differs in the application of the model to the specific components of exports (rather than aggregate exports) so that policymakers may get a better view of sector-specific export promotion strategies This is useful because SVEs like Fiji cannot compete in all the commodity markets. The decision to use the general-to-specific approach in this paper
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