AN ANALYSIS OF THE DETERMINANTS OF FIJI'S IMPORTS

Abstract

In Fiji, imports as a share of GDP has been rising strongly, particularly over the past three decades. Over these years imports have fluctuated considerably, generally in line with fluctuations in aggregate demand. Fiji is a small island state, heavily dependent on external trade for many of our essential goods. It is vital, therefore to always ensure that we have adequate foreign reserves to pay for our import needs. It is therefore important that we understand the factors determining import demand and underpinning its growth and fluctuations. This will facilitate balance of payments projections and allow for better forecasting of foreign reserve levels. In this paper, the behaviour of Fiji’s imports during the period 1968-1998 is studied and important factors that determine imports are identified. The estimation of an error correction model enables the separation of the shortand long-run elements of this relationship. The study shows imports and domestic demand move contemporaneously in the short-run in an almost one-for-one fashion. The real effective exchange rate is also found to be a strong determinant of imports in the short-term. In the long-run, domestic demand is the major determinant of movements in imports in Fiji.