The effect of government on economic growth in Fiji

This paper investigates the empirical relationship between the size of government and the process of economic growth in Fiji. The results reported here present a mixed picture, in that the model estimated specifies two different effects of the government sector on economic growth. Using annual time series data for the period 1964-1999, it is found that government expenditure exerts a strong beneficial impact on economic growth. However, marginal factor productivity in the government sector is found to be lower than that of the private sector. The reasons for this low productivity are twofold: the result of the lack of market incentives and signals in the public sector and the involvement of Fiji's government in some activities which may be rationalised in terms of the socio-political objectives of the Fijian government. While recognising that there may be factors which may hinder the process of efficiency in the private sector, it can be argued that by shifting factors of production from the low productivity (government) sector to the high productivity (private) sector, the rate of growth of GNP will increase.