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ANAND G. CHANDAVARKAR

Monetization, defined as the enlargement of the sphere of the monetary economy, is among the most significant aspects of the growth and development of the economies of less developed countries (referred to hereafter as LDCs). It involves the extension through time and space of the use of money in all its aspects—namely, as a medium of exchange, a unit of account, and a store of value—to the nonmonetized (subsistence and barter) sector. The monetization ratio, that is, the proportion of the total of goods and services of an economy that is monetized, in the sense of being paid for in money by the purchaser, is one of the most important characteristics of the level and course of economic development. It should, therefore, be “a major concern of quantity-minded economic historians … the statistical information now available is woefully inadequate, both for the present situation in the less developed countries and for the values of the ratio during earlier stages of development of the now advanced countries.” 1 However, while the importance of monetization is generally recognized, there has been hardly any systematic analysis of its conceptual and empirical aspects.2 Even studies that purport to deal with monetization suffer from the lack of an adequate conceptual frame of reference.3

PAUL CASHIN and NORMAN LOAYZA

This paper examines the growth experience of nine South Pacific countries during the period 1971–93, using the analytical framework of the Solow-Swan neoclassical growth model, panel data, and Chamberlain’s П-matrix estimator. The speed of convergence of South Pacific countries to their respective steady-state levels of per capita GDP, after controlling for the important regional effects of net international migration, is estimated at a relatively fast 4 percent per year. In addition, private and official transfers emanating from regional donor countries have kept the dispersion of real per capita national disposable income constant over the period, despite a significant widening in the regional dispersion of real per capita GDP. [JEL F22, O47, O56]