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.
Central Bank of Barbados
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.