Credit boom in Fiji: too much of a good thing? An impact analysis

Abstract

Since 2001, Fiji has been witnessing strong growth in domestic credit for a continuous period of four years. Besides contributing to Fiji's economic recovery and increasing gross domestic product, the credit boom resulted in deteriorating annual trade balances. Examining the relationship between domestic credit, economic growth and trade balance, this paper finds the presence of a long-run relationship flowing from domestic credit to economic growth but not vice versa. Besides, there is a strong evidence of a bi-directional short-run causality between the variables, which suggests that domestic credit not only promotes economic growth, but also affects trade balance