Keywords: foreign direct investment, FDI, South Pacific Island Countries, Fiji, cointegration analysis, causality, economic growth, growth rate, market size, openness policy, real exchange rate
Foreign direct investment in the South Pacific Island Countries: a case study of Fiji
The South Pacific region has been lagging behind in growth in comparison to similarly placed island countries in the Caribbean and Indian Ocean regions. This paper, which undertakes an empirical study, establishes that the rate of growth, market size, openness policy and real exchange rate are crucial determinants of foreign direct investment (FDI) inflows into Fiji. Further, the Granger noncausality test based on Vector Error Correction Model shows that there is a bi-directional causal linkage between FDI and economic growth. The conclusion is that Fiji should adopt an appropriate policy environment for encouraging the growth inducing FDI inflows.