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Tourism accounts for a predominant share of service exports for both Fiji and Samoa.
The total weight of food in the Fiji and Samoan basket adds up to around 40 and 52 percent, compared to the corresponding approximately 17 percent and 19 percent weights for Australia and New Zealand.
For this exercise, we are adjusting only the CPI basket weights and keep the bilateral trade weights constant, i.e., we do not change the composition of countries included in the REER index.
Results for Fiji are not presented as they are similar to those of Samoa.
The corresponding equations are estimated on a bilateral basis, i.e., we estimated three separate equations trying to explain tourist arrivals from Australia, New Zealand and the Unites States. Detailed results for tourist arrivals from Australia are documented in an unpublished working paper (Miller, C., Rauqeuqe, L., and Wainiqolo, I., 2014), which is available upon request.
Besides the autoregressive distributed lag (ARDL) approach documented here, we also used error correction models (ECM) and Johansen’s approach to co-integration using vector autoregressive (VAR) models to test for co-integration but found no robust evidence for the existence of a co-integration relationship. The detailed results for the ARDL approach are documented in an unpublished working paper (Miller, C., Rauqeuqe, L., and Wainiqolo, I., 2014), which is available upon request.
This exercise can be easily replicated for Fiji. However, given that the purpose here to demonstrate how to apply the methodology, we focus on the Samoan case only. The results for Fiji would be very similar given that the simulation results depend for the most part on our export and import elasticity assumptions, which probably are in a similar range for Fiji and Samoa.
The export of wiring harnesses is treated in the BOP as a service export but this activity does not fit with our tourism-based service elasticity assumptions. Hence, for the purpose of this exercise we treat the export of wiring harnesses as an export of goods; the elasticity assumptions we make for goods exports should be consistent with the production and export of wiring harnesses.