A survey of growth and development issues in the Pacific islands

Abstract

In this paper, we first survey some factors that are generally believed to be growth improving and create an environment for growth; these are foreign aid, FDI, trade, migration, remittances and external debt. Our sample of countries comprises the Fiji Islands, Papua New Guinea, Solomon Islands, Samoa, Tonga and Vanuatu. A growth-accounting exercise is conducted to determine the relative importance of factor accumulation and factor productivity. It is observed that growth in these countries is dominated by factor accumulation. We therefore conduct a simulation study with the Sato (1963) closed-form solution for output in the Solow (1956) model to show that increasing the investment ratio is important in counties such as Fiji, Solomon Islands and Papua New Guinea, because its growth effects persist for more than a decade. Finally, some econometric tests on the significance of aid for output and/or growth are conducted on a selective basis due to data limitations and the scope of this paper. The econometric results show that, in aggregate, aid has either insignificant or negative growth effects in Fiji, Solomon Islands and Papua New Guinea