Fiji's total debt stands at 65% of GDP. Domestic debt constitutes 55% of GDP. The goal of this paper is to investigate whether military expenditure has contributed to Fiji's exploding debt levels over the period 1970 to 2005. Our empirical analysis, conducted within a cointegration and vector error-correction framework, suggests that, in the long-run, military expenditure has had a statistically significant positive impact on both external debt and domestic debt, while income has had a statistically significant positive impact on domestic debt and a statistically significant negative impact on external debt. We explain the reasons behind this finding and draw some policy implications.
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