Trade, Agriculture And Inter-Industry Spillover Effects In Fiji

Abstract

Fiji's agricultural sector has been integral to the Fijian economy in terms of the provision of food and raw materials for the domestic market, the absorption of domestic labour and capital, and generation of export income. It has also supported manufacturing and services sectors. However, research providing a systematic investigation into the effect of trade on agricultural value added and the spillover effects of agriculture into other sectors of the Fijian economy deserve an extended analysis in terms of setting effective agricultural trade and sectoral linkage policies. This paper investigates the effect of trade on agricultural value added and inter-industry spillover effects in Fiji. The analytical procedure involved testing the effect of trade on agricultural value added; testing the effect of trade as well as the investment in agriculture on the manufacturing of food, beverages and tobacco; and testing the spillover effects of agriculture on the industry and services sectors. Our findings reveal the positive but statistically insignificant effect of trade on the agricultural and industrial sectors. However, we find evidence of a positive and statistically significant correlation of agricultural value added on food, beverage and tobacco manufacturing, which is important in its own right and due to its impact on the industrial sector. Our findings do not provide any strong support for a positive and statistically significant spillover effect directly from agriculture to the industrial and services sectors. Fiji’s agricultural sector has suffered through poor agricultural policies, institutional failures as well as low levels of public and private sector investment that has led to its gradual decline. While the services sector has emerged as the dominant sector in Fiji, with large concentrations on tourism services, the continued success of the services sector is also dependent on the concurrent emergence of a productive agricultural sector that can supply locally produced food to the tourism industry, reduce food import bills and foster greater linkages with the agricultural sector. We conclude that policy makers need to seriously consider new agricultural policy initiatives that would allow greater connectedness of the agricultural sector to other sectors such as tourism services.