Aid and Economic Growth in Pacific Island Countries: An Empirical Study of Aid Effectiveness in Fiji

Abstract

Pacific island countries (PICs), ever since their independence during the second half of the last century, have been among the world's top ten recipients of official development assistance (ODA) on a per capita basis. Until the mid 1990s, most of them were receiving aid from their erstwhile colonial masters for budgetary support. With the introduction of reforms in ODA delivery in the late 1990s with focus on program and project-tied aid, it was expected that aid would directly facilitate creation of much-needed growth enhancing infrastructures, physical as well as social, since domestic savings were found to be insufficient to finance them. However, continued stagnation in some PICs and deterioration in some others have been causing concerns. This paper seeks to examine the effectiveness of aid by undertaking a case study of Fiji, which has a longer time series data needed for econometric investigation. Based on the study's findings, the paper lists some policy conclusions relevant to the region.

Income and consumption smoothing and welfare gains across Pacific Island Countries: The role of remittances and foreign aid

“…Many studies have investigated the effects of foreign aid and remittance transfers on economic growth for the PICS, including Knapman (1986), Gounder (2001), Jayaraman and Choong (2006), Pavlov and Craig (2006), Rao and Takuria (2006), and Rao et al (2007). However, these studies are silent on measuring the extent to which remittances and foreign aid smooth domestic output shocks and stabilize per capita consumption.…”