Financial sector development and growth in Fiji: an analysis of credit boom and its implications

Fiji witnessed strong growth in domestic private sector credit for a continuous period of four years from 2001. Aside from contributing to Fiji’s economic recovery, the credit expansion resulted in deteriorating annual trade balances. Examining the relationship between private sector credit, economic growth and trade balance, this paper fi nds the presence of a long-run relationship with linkage from domestic private sector credit to economic growth but not vice versa. Further, the results indicate evidence of a bi-directional short-run causality between the variables suggesting that private sector credit not only promoted economic growth, but also affected trade balance.