Effect of procurement policy on aid inflows in the Pacific: accounting for economic growth and financial development in Fiji

We examine the impact of public procurement policy on aid inflows, in Fiji, a small developing island economy in the Pacific. Prior to 2010, Fiji did not have a strong and detailed public procurement policy. Therefore, in the study, we examine the short-run and long-run impact of adopting an improved (new) public procurement policy on the aid inflows from the bilateral donors: Australia, United Nations (UN), European Union (EU), Japan, Korea Republic, France, and Germany. The autoregressive distributed lag (ARDL) procedure is used to examine cointegration and the subsequent short-run and long-run effects. Additionally, the model incorporates per capita income, financial development, and crisis as a structural dummy; and the presence of threshold effect on aid inflows is examined. The results show that procurement legislation, financial development, per capita income and crisis have a long-run association with the aid inflows. New public procurement legislation has a positive effect on aid inflows from Australia, EU, Germany and the overall aid. In short-run, procurement legislation has a positive effect on aid inflows from Korea Republic only; and the new procurement policy and financial development have a long-run positive effect on aid inflows to Fiji. Overall, improved procurement policies, a well-developed financial sector development and a reasonable level of growth will bolster aid inflows whereas political uncertainty and global financial crisis retard aid inflows.