An econometric model of the determinants of private investment and a CGE model of the impact of democracy on investment and economic growth in Fiji
Abstract
Purpose
The purpose of this paper is to construct an econometric model of the determinants of private investment with a particular focus on the impact of democracy on investment.
Design/methodology/approach
The first step was to econometrically derive the long‐run elasticities; then to modify the Fiji computable general equilibrium (CGE) model to incorporate the investment function. Also the econometrically derived long run elasticities in the CGE model were used.
Findings
It was found that democracy has a positive and statistically significant impact on private investment in Fiji. The paper's simulation of Fiji becoming a fully democratic country on investment and other macroeconomic fundamentals, based on a CGE model, reveals that real gross domestic product and real national welfare increase by around 0.01 and 0.05 per cent, respectively; government savings and revenue performance improves; there is a trade balance surplus; and both private consumption and disposable income increase by around 0.05 and 0.12 per cent, respectively.
Originality/value
This is the first study that uses a CGE model to examine the impact of democracy, via investment, on other macroeconomic fundaments. No other study is known to have modelled democracy in a CGE framework.
Keywords
Citation
Narayan, P.K. (2008), "An econometric model of the determinants of private investment and a CGE model of the impact of democracy on investment and economic growth in Fiji", International Journal of Social Economics, Vol. 35 No. 12, pp. 1017-1031. https://doi.org/10.1108/03068290810911525
Publisher
:Emerald Group Publishing Limited
Copyright © 2008, Emerald Group Publishing Limited