Exploring the Oil Price and Real GDP Nexus for a Small Island Economy, the Fiji Islands
Energy Policy, Volume 35, Pages 6506-6513, 2007
Posted: 2 Jun 2012
Date Written: July 25, 2007
Abstract
The goal of this paper is to examine the relationship between real GDP and oil prices using time series data for the period 1970-2005. Our main finding is that an increase in oil has a positive, albeit inelastic, impact on real GDP, inconsistent with the bulk of the literature. We argue that this is not a surprising result for the Fiji Islands. Our central argument focuses on two aspects of the Fijian economy: (1) the fact that actual output in Fiji has been around 50 per cent less than potential output; thus, Fiji’s actual output has not reached a threshold level at which oil prices can negatively impact output; and (2) a rise in oil prices filters through to value added, which in turn is reflected in a larger actual output.
Keywords: Fiji, GDP, Oil prices
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