Working Papers

Very small economies may achieve high levels of development, as evidenced by Iceland and Mauritius, notwithstanding the facts of their high import dependence, limited capacity for export diversification, open financial markets and susceptibility to external shocks. This paper explains how unorthodox fiscal and monetary policies may be employed to ensure stability and maintain competitiveness and growth in the face of oil price shocks, the impact of natural disasters, capital flight and contraction in foreign investment, in countries characterised by this economic structure.

This chapter evaluates Guyana's economic performance since 1990, using the UNDP's Human Development Index. The confident expectations for Guyana's resource-rich economy in the 1970s were defeated by a failed experiment in state control which caused a major regression in economic development in the 1980s. By 1990 Guyana had fallen behind the rest of the Caribbean - Haiti excepted - in the HDI rankings. By that date, however, the last of the controls that had strangled production were being dismantled.

The priority should be to conclude debt restructurings swiftly and to clear paths for the global transfers from rich to poor countries that must take place if the world is to have any chance of reversing global warming and the climatic changes that are an existential threat. The existing restructuring frameworks are adequate for countries above the median score of the Human Development Index (HDI), but the outstanding debt of countries below the median should be written down by a trust fund financed by donations from rich countries.

Policy makers in small open economies continue to manage exchange rates as though there is a relationship between the US dollar value of the domestic currency (if they have one) and the performance of the economy. This paper, which presents some essential messages of my recent book Development and Stabilization in Small Open Economies, explains why that is not the case.

This book analyses and explains the nature of the economies of small countries and territories. It includes an assessment of material prosperity in 41 small open economies worldwide, with case studies focusing on the Caribbean and Central America, and a review of the development of their economies in recent decades. The volume recommends a suite of economic policy tools for the management of these economies, demonstrating how these may best be employed in economies that live and breathe through international commerce.

This study uses changes in the Human Development Index (HDI) between 2019 and 2021 as an early (and incomplete) indicator of the impact of the Covid-19 pandemic on the countries of Central America and the Caribbean (CAC). The HDI, which has been published annually by the United Nations Development Programme since 1990, combines indices of the purchasing power of average national incomes (measured in US dollars), life expectancy, and average years of schooling, for each country. Except for Guyana and Nicaragua, the HDI score for every country in the CAC declined.

A Summary of Caribbean Economies’ Policy Responses to the Covid-19 Pandemic, by Julia Jhinkoo-Ramdass, September 2021. The pandemic is crippling the economies of rich and poor countries alike, but for many low-income and fragile states, the economic shocks can become debilitating. The way forward from this new reality that we all face is still unknown on so many levels for every one of us. Governments have been implementing large-scale fiscal programmes geared towards easing the effects of the COVID-19 pandemic.

This study assesses the economic performance of Central American and a selection of Caribbean (CAC) countries over the past 30 years, using the Human Development Index as the measure of gains in the overall well-being of their populations. The majority of CAC populations are in the categories of High and Very High Human Development, and there has been steady improvement in almost every case. Growth in real GDP per capita was strongest in the countries that export manufactured goods, along with significant receipts from tourism and other activities.

The remarkable surge in Chinese economic productivity, especially since the turn of the century, has been of material benefit to every economy in the world trading system, and the Caribbean has shared in those benefits. The most substantial benefit to the Caribbean from the relationship with China has been via the purchase of more affordable products made in China or made with Chinese inputs. The Caribbean has secured additional imports that may be of the order of five to ten per cent, compared with what the same money would have bought from alternative sources.

The growth of the tourist industry in the Caribbean is a rich and varied success story. For the most part it has been a story of private enterprise, with the providers of tourism services pricing their services in line with the quality of service on offer, and, for a majority of countries, adjusting prices in a successful strategy of protecting or increasing their market share. The best performing countries recorded high average daily expenditures per visitor, full capacity, a growing inventory of accommodation, and strong growth in arrivals. Among the other countries there is every combination of high/low average daily expenditure, good and bad value propositions, diversification of source markets, full to low capacity utilization, and large, modest, or little or no increase in accommodation. The results ranged from modest to exceptional growth in visitor arrivals, sustaining the Caribbean’s share of world tourism above two per cent of the global total.

In the years since World War II Barbados was transformed from a desperately poor society, with only a tiny middle class, to today's economy of mostly middle-income earners, which is ranked by the UNDP among the highest level of human development globally. In this chapter we discover that the transformation took place, for the most part, in the 1950s and 1960s. Thereafter, economic development gains were modest, and the economy has performed well below its economic potential. The chapter tells the story of the changeover from sugar to tourism as the mainstay of the economy, and the factors that affected investment and growth. The phases of growth, the pressures on the balance of payments and the economic crises that have occurred are analysed, and the impact of Government policies on growth and economic stability is explored in depth. The chapter concludes with thoughts on the way forward for Barbados and the Caribbean.

This chapter recommends an alternative to the standard approach to economic stabilisation and growth policy for small open economies. The standard view, reflected in the analyses of the IMF, other international institutions, most think tanks and the media, is that a combination of credible inflation targetting regimes, flexible exchange rates, and fiscal sustainability are the core elements of a policy regime that is appropriate for all countries, regardless of size. Instead, for small open economies we propose the use of fiscal management to maintain and improve the international competitiveness of the economy, to maximise the inflow of private foreign capital motivated by attractive rates of return, and to stabilise inflation expectations by anchoring the exchange rate to an international reserve currency. This chapter explains the alternative policy framework, and compares it with the standard approach.

This paper was presented at the Symposium “The Caribbean on the Edge: Rising Above the Orthodoxy of Development Thinking”, organized by the Insititute of International Relations, University of the West Indies, St Augustine, Trinidad on September 11, 2019.

The currencies of Caribbean countries have now outlived their usefulness, and have become a liability. They were devised at a time when most payments were made using notes and coin, issued in distant metropolitan centres. Scarcity of the means of payment was a severe hindrance to commerce. In response Currency Boards were set up, to issue local currency as needed in the colonies. The system worked well because the local currency issue was backed by an equivalent value of Sterling, in a global system of fixed exchange rates. In contrast, nowadays payments are made mostly by electronic communication, credit and debit cards, cheques and drafts, with settlement over digitized bank accounts. In today’s world an own currency has become a liability for small economies, limiting access to international goods and services, exposing residents to risks of currency devaluation and inflation, eroding the value of domestic savings, increasing economic inequalities, providing a tool for unproductive government spending, and diverting attention from the need to increase productivity and enhance international competitiveness. You can also access this publication on The Social Sciences Research Network.

Abstract. The oil price boom has undermined efforts to diversify the Trinidad-Tobago economy, and the wide fluctuations in oil prices have wreaked havoc with Government finances. Manufacturing has declined in relative importance and the economy is once more overly dependent on the petroleum sector. The abrupt fall in oil prices in 2015 substantially increased the fiscal deficit, and brought on chronic shortages of foreign exchange.

This paper proposes an approach to macroeconomic policy which equips the authorities in small, open, financially-integrated economies (SOFIEs)2 to target the exchange rate by influencing the volumes of trade in goods and services to achieve equilibrium at the target rate. This is achieved by the use of fiscal policy: the authorities may adjust the size of the fiscal deficit and how it is financed to contain the level of aggregate expenditure in the economy, and the demand for imports that flows from that expenditure.

This paper was prepared for the Handbook of Small States - Economic, Social and Environmental Issues (Routledge 2018), edited by Lino Briguglio of the University of Malta. You can also access this publication on The Social Sciences Research Network.

The forecasts in my paper The Barbados Economy: The Road to Prosperity are based on an empirical model of an export-driven economy, where the source of growth is increased productivity and competitiveness in tourism, other traded services and exports. Foreign exchange inflows and incoming investment generate multiplier effects on domestic production and incomes, which in turn increase the demand for imports, paid for out of the foreign exchange earnings and capital inflows.

"Macroeconomics and Small Developing Economies: a Policy-Maker's Perspective," in Economics in a Changing World, Volume 4, edited by Edmar Bacha, London: Macmillan, 1994.

"Economic Adjustment and Growth in Small Developing Countries," in Open Economy Macroeconomics, edited by Helmut Frisch and Andreas Wortgotter, London: Macmillan, 1993.