Time Series Dynamics of Sugar Export Earnings in Fiji with Multiple Endogenous Structural Breaks: Implications for EU Sugar and Industry Reforms

The sugar industry has been the backbone of the Fijian economy since the late 1950s. Owing to its poor performance over the recent years, and especially the expiry of preferential agreements with the European markets after September 2017, the long term sustainability of the industry has come under the scrutiny. In light of this scrutiny, this paper investigates the response of Fiji's sugar export earnings to domestic and external shocks using a suite of unit root tests that allows for endogenous multiple structural breaks. Our analysis reveals that sugar export earnings is a non-stationary process, implying that shocks to sugar export earnings will have a permanent impact. The empirical results suggest that the impact of adverse shocks (for e.g. expiry of preferential agreement with the European Union and natural disasters) will not only be restricted to sugar export earnings but will also be transmitted to other related variables and sectors of the Fijian economy. Moreover, the results also suggest that temporary (short-term) measures to increase sugar export earnings will mostly be ineffective, as the export earnings will not revert back to its equilibrium path. Our finding underscores the necessity of policy intervention through permanent policy changes to minimise fluctuations in the sugar export earnings, and shelter the industry from adverse external and domestic shocks.