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.
This paper was prepared for the forthcoming 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.
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.