Neelesh Gounder

An Empirical Investigation of the Relationship between Government Revenue and Expenditure: The Case of the Fiji Islands

Purpose - Understanding the relationship between government revenue and government expenditure is important from a policy point of view, especially for a country like Fiji, which is suffering from persistent budget deficits. The aim of this paper is to investigate the relationship between government revenue and expenditure for Fiji. Design/methodology/approach - The Johansen test for cointegration and Granger causality test are used to conduct the empirical analysis. Findings - The key findings are that: government revenue and government expenditure in both the aggregate and disaggregate sense are cointegrated; in the short-run government expenditure Granger causes government revenue in an aggregate sense, departmental expenditure Granger causes aggregate revenue, and there is bidirectional causality running between government expenditure and customs duties; and in the long-run there is evidence of fiscal synchronization, implying that expenditure decisions are not made in isolation from revenue decisions. Research limitations/implications - This fiscal synchronization has not been able curb the current account deficit in Fiji. Moreover, the confirmation of the spend-tax attitude of the government does not bode well for the level of investments and skilled human capital in Fiji as this may perpetuate tax increases in the future. Given that the Fiji Government is currently trying to rein in the escalating level of fiscal deficit, it is an opportune time for them to engage in extensive expenditure reforms. Originality/value - The findings of this paper should allow policy makers to make informed decisions. Furthermore, the paper is different from others because apart from examining the revenue and expenditure in an aggregate sense, it also considers the different components of revenue and expenditure.

Investment ratio in growth equations

In the cross-country and time series studies on the determinants of the growth rate, capital stock is often proxied with the investment ratio due to lack of reliable data. While investment ratio may give good results with OLS, their robustness is doubtful. In addition there are other problems: (a) investment ratio may be a good proxy for the change in capital stock, but combining it with the level of employment to estimate a production function leads to misspecification bias; (b) it is not possible to impose any valid constraints on the coefficients of these variables and (c) if instrument variables are used to minimize any endogenous variable bias, the equation with the investment ratio seems to be fragile.

Determinants of bank net interest margins in Fiji, a small island developing state

This article investigates the determinants of Net Interest Margins (NIM) of banks in Fiji, a Small Island Developing State (SIDS) in the South Pacific, over the period 2000–2010. Based mainly on the Ho and Saunders’ (1981) dealership model and extensions thereto, this study uses a number of panel data estimation techniques to control for possible heterogeneity across banks and various assumptions about errors. Consistent with the theoretical model, NIM has a positive association with implicit interest payment, operating cost, market power and credit risk, and a negative association with the quality of management and liquidity risk. However, the association with bank capital and opportunity cost of required reserves do not conform to expectations. Policy implications are discussed.

Level and Determinants of Foreign Bank Efficiency in a Pacific Island Country

This study fills a huge gap in literature by providing some evidence on the level and determinants of bank efficiency in a Pacific island context. DEA results show that overall efficiency levels may be lower than in Australia, the home country of major banks. Dynamic GMM and panel data results show that personnel expenses and bank credit matter for efficiency, but not other bank-specific and macroeconomic factors. These insights substantially improve policy-making capacities for Fiji and other Pacific economies, including Papua New Guinea, Samoa, Tonga, Solomon Islands and Vanuatu where banking and regulatory systems and structures are highly comparable.

Correlates of poverty in Fiji: An analysis of individual, household and community factors related to poverty

Purpose - The purpose of this paper uses household survey data to model the correlates of household consumption and poverty in Fiji. A multivariate empirical analysis is conducted to ascertain those household and community characteristics that correlate with household welfare and poverty. In particular, the results will show how a particular characteristic will affect household poverty conditional on the level of other characteristics that are also potential determinants of poverty. Design/methodology/approach - The key approach in this paper is similar to Mukherjee and Benson and is based on ordinary least squares (OLS) modeling of the natural logarithm of total per capita consumption of households, which serves as the household welfare indicator, against a set of exogenous determinants such as household and community characteristics. For robustness checks, a probit regression is also estimated with the probability of a household being in poverty as the dependent variable and an identical set of independent variables used in the OLS regression. Findings - The results show that higher levels of education, supporting agricultural growth policies in rural areas and reallocation of labour into the formal sector of the economy will prove effective in reducing poverty at the household level. These results can have important policy implications for design and implementation of poverty reduction policies. Originality/value - Empirical studies on the determinants of household consumption and poverty are non-existent in Fiji. This thus is the first study which attempts to model the determinants of poverty at the household level and is the major contribution of this paper.

Foreign banks, profits, market power and efficiency in PICs: some evidence from Fiji

Studies on bank profitability vis-à-vis market power and efficiency span a number of years, many countries, regions and methods. Yet, the experiences of the Pacific’s small states – where foreign banks are widespread and bank profits relatively high – remain unknown, leaving policy-makers ill-informed regarding relevant policy development. This study fills a huge gap in literature by providing some evidence on the issue in a Pacific Island context. Two market power hypotheses – the structure-conduct-performance (SCP) and the relative market power (RMP) hypotheses together with two measures of the efficient structure (ES) hypothesis – X and scale efficiencies are estimated. The nonparametric data envelopment analysis (DEA) technique is used to estimate efficiency scores for banks in Fiji over the period 2000 to 2010 and the dynamic GMM to estimate the relationships between market power and efficiency vis-à-vis profitability. Results show that the RMP and ES hypotheses might hold, but not the SCP. Profits appear to persist over time. Policy implications are considerable including that any suggestions to limit further mergers and acquisitions of banks in the region may have to be properly debated.

Supply Side Obstacles to Financing the Private Sector: Empirical Evidence from a Small Island Developing State

In light of the growing finance - private sector - economic growth findings, this article examines, from a supply - side perspective, obstacles to private sector financing in Fiji, a representative South Pacific small island, growth deprived, fragile economy. A survey of 80 percent of the formal financial sector suppliers reveals that financing the private sector may not be a major problem. However, the prevalent relationship - lending practices, good profits and well - managed risks also suggest that suppliers may be concentrating on a systematically selected small group of connected borrowers; the wider private sector, including many SMEs may be left out. Growth and development implications extend to developing economies beyond the South Pacific region.

Regional trade agreements and the new theory of trade: Implications for trade policy in Pacific Island countries

Purpose – The purpose of this paper is to explore the two issues of regional trade agreements (RTAs) and the new theory of international trade and draw conclusions for Pacific Island countries (PICs). The authors provide a deeper conceptual treatment of the consequences of RTAs and analyse the new theory of international trade to explore its implications for trade policy in PICs.Design/methodology/approach – With regard to RTAs, the argument is developed in the context of the conjecture that questions the benefits from adopting more open trade policies with neighbours while maintaining restrictive policies towards the rest of the world. The authors draw on international and regional analytical literature and on recent modelling work to review critically the possible gains and losses of RTAs for PICs. In the latter issue, the focus is on the roles of imperfect competition and scale economies and their relevance to PICs.Findings – Freeing up trade gradually and unilaterally and realizing the benefits of com...

Determinants of Bank Credit in Small Open Economies: The Case of Six Pacific Island Countries

This paper examines the changes in bank credit to private sector across six economies in the South Pacific. An extensive time-series and cross-country panel data allow us to draw new and broader lessons compared to existing research, which have tended to focus mostly on single countries with shorter time periods. Results show that rising average lending and inflation rates may be detrimental to credit growth, and that deposit and asset size contribute positively to credit growth. Results also indicate that stronger economic growth leads to higher credit growth. A number of policy implications emerge and are also discussed.

Resilient through the GFC and Beyond: What Drives Bank Profitability in Small, Open Pacific Economies?

Banks in open, small island economies of the Pacific have not only survived the Global Financial Crisis but remain highly profitable raising the question: what drives the strong profitability of banks in the region? This is the first study to systematically examine the determinants of bank profitability in a Pacific island context. Only one determinant—noninterest income—is significant. Policy makers can now obtain a deeper understanding of the components of this revenue item with a view to helping banks remain strong and stable through continuing global uncertainties.