http://worldcat.org/entity/work/id/222228578

Economic performance in small open economies : the Caribbean experience, 1980-92

November 1995 Six small Caribbean islands did remarkably well during a period of significant economic problems, while four larger islands did poorly. Why? The difference in performance cannot be explained by external shocks alone. McCarthy and Zanalda study the economic performance of ten Caribbean islands from 1980 to 1992. They study the islands in two groups: six small islands from the Organization of Eastern Caribbean States (OECS) and four larger islands: Barbados, Dominican Republic, Jamaica, and Trinidad and Tobago. These islands all experienced significant economic problems in 1980 - 92, but the OECS group did remarkably well (averaging an annual GDP growth rate of 5.2 percent) while the larger islands grew at only 0.7 percent a year. Why? McCarthy and Zanalda compute external shocks together with each island's performance response to them. Some islands resorted inordinately to external financing to cope with adverse shocks. Others tried to compensate by stimulating exports and tourism. The buildup of debt created problems for some of the governments later in the decade, resulting in the need for strong contractionary measures. But the difference in performance between islands cannot be explained by external shocks alone. The OECS group achieved superior performance even though they faced roughly the same shocks as the larger islands. It helped that they had a monetary board that encouraged high investment levels. But this was complemented by concessionary flows used productively and by foreign direct investment. Now the question is how well these economies will fare when they face the inevitable reduction in concessionary flows in coming years. This paper -- a product of the Office of the Vice President, Development Economics -- is part of a larger effort in the Bank to analyze external shocks, policy response, and economic performance.

Open All Close All