Journal of Latin American Studies, Beijing:, 2016: Small, very open economies (SVOE’s) are defined in this paper as those economies with population and total GDP so small and limited that they must specialize in a handful of exports and services to enable them to become competitive on international markets. These countries have negligible scope for import substitution, and an open financial account. These structural characteristics define the policies that are effective in SVOE’s: growth is always led by expansion of foreign exchange sectors, which fuel the imports needed for consumption and production; an exchange rate anchor is the most effective stabilisation tool, and it may be sustained with the use of fiscal policy; and the maintenance of an adequate level of foreign reserves defines the limit of fiscal sustainability.
Central Bank of Barbados Working Papers
2016: This paper analyses the potential causes and consequences on the Caribbean of de-risking strategies adopted by international banks in response to recent changes in bank regulation, reporting requirements and judicial pursuits. These include the initiatives adopted by the Basel Committee, the Financial Action Task Force, the OECD Global Forum on Transparency and Exchange of Information for Tax Purposes, the US FATCA, and the increasing judicial scrutiny faced by international banks. The impact to date has been felt in the Caribbean across -the-board, including in jurisdictions with competitive, well regulated and transparent international financial centres, which provide high quality financial services.
2016: This paper explores the difference in perception between economists and ordinary folk about the importance of stable exchange rates for small open economies. Small open economies everywhere are preoccupied with exchange rate stability, whereas most economists believe that exchange rates should be managed flexibly to maintain competitiveness or allowed to float freely. To most non-economists it is fairly obvious that countries with more stable exchange rates are more prosperous. Our paper finds empirical evidence in support of that view.
2016: Exchange rate devaluations have been used by economies around the world in an attempt to enhance their external price competitiveness. This paper evaluates the efficacy of this strategy in small-island developing states. We classify countries around the world into two broad categories, large or small according to population, land area and economic size, proxied by GDP. We compare large countries with small countries according to the following dimensions: the country’s share of world export markets, the diversity of exports of goods and services, the elasticity of import demand for consumer and producer goods, and the sensitivity of prices and wages to exchange rate changes. Using these results, we assess the efficacy of devaluation as a competitive strategy in small states as well as in larger countries.
2014: This study investigates the competitiveness of the Barbadian economy relative to its regional counterparts. The analysis incorporates the relative rankings of the Global Competitiveness Report 2013-2014, relative market shares and productivity gains, as well as a novel price competitiveness index by Worrell, Greenidge and Lowe (2013). The results suggest that Barbados is competitive both regionally and globally, ranking ahead of its peers in key areas such as the strength of its institutions and the quality of its health care and primary and higher education. In addition, despite some declines in tourism post-crisis, the island has maintained market share in most of its key foreign exchange earning sectors, while seeing improved price competitiveness of its internationally traded goods and services over the past decade.
2013: There is sufficient evidence from the existing literature to support the view that small states are different: they are more open, they are forced by their limited resources to be specialised in a few internationally competitive products and services, and they therefore do not have the option of adopting more of a closed economy strategy in pursuit of economic growth. Small states have outperformed large states, but only when they pursued strategies appropriate to their circumstances. The strategies for stabilisation and growth that work for large economies do not suit the circumstances of small economies, and if applied as in large countries, they invariably result in policy failure. In particular, the record shows that economic growth in the small open economy depends on increasing quality and productivity, and is unaffected by changes in relative prices. This paper surveys the literature with a view to gaining insights into monetary and exchange policies that are best for small economies.
2013: In their 2010 IMF policy paper, Blanchard, Dell’Ariccia and Mauro observed that central banks of smaller economies were well advised to manage their exchange rates, as well as to contain inflation. They admitted that many countries did in fact pursue both inflation and exchange rate objectives. The present paper takes this argument one step further, demonstrating that the management of aggregate demand, using fiscal policy, is an effective means of achieving an exchange rate target, whether that target is an unchanged exchange rate anchor to a single currency or a basket of currencies, or a stable rate with low volatility.
2013: The economic prospects for the Caribbean depend on creative private sector responses to the challenges of the countries’ markets for exports of goods and services, principally in North America and Europe. Governments’ role is to stabilise exchange rates, thereby minimising inflation and ensuring domestic policy credibility, to support the private sector export thrust in selected, strategic areas, and to secure the social safety net for vulnerable groups in society. These countries have all achieved a relatively good quality of life for their citizens, reflected in Human Development Indices that range from the medium to the highest category; simply by avoiding economic contraction they may preserve a comparatively good lifestyle, in the interval that will be required while new investments in exports, tourism and other export services germinate.
2012: Insufficiency of foreign exchange may at times constrain the growth of small open economies which lack the domestic resources to produce import substitutes for their consumption, investment and input needs. This study explores the foreign exchange constraint in three small open Caribbean economies, using a structural model of the relationship of foreign exchange earnings and growth, and the economies’ openness to international markets. The model is used to evaluate the prospects of economic growth for these economies, based on the forecast availability of foreign exchange.
2012: The paper finds that (a) the proportion of indirect taxes in total revenue remained unchanged after the introduction of the VAT; (b) the yield of the VAT relative to the rate of tax, was no higher than for the consumption tax in the period prior to its introduction; (c) the costs of administering the VAT and customs duties were about the same, relative to their yields, before and after the introduction of the VAT; and (d) the consumption taxes that preceded the VAT were more buoyant in response to changes in income, and more elastic, than was the VAT.
2012: This study includes measures of price and non-price competitiveness in the Caribbean. Results suggest that most countries have become more price competitive, while the smaller Caribbean islands have increased their advantage in the exports of goods and services and international finance. Preliminary estimates also provide some evidence that aggregate world demand, local investment and price competitiveness improve the growth of production in the tradable sector.
2012: This paper provides the rationale for the Central Bank of Barbados’ market-based interest rate policy, instituted in April 2015.
2011: This paper reports on a risk analysis for Caribbean international financial centres, and makes the case that the international initiatives for financial reform should be tailored to the risks, and the process should use the expertise which resides in the IMF and World Bank to lend credibility and fairness to international financial reforms.