The East Asia Experience
and its Relevance to the Caribbean
Within the NAFTA Environment
Section I. Introduction
Economic development during the last thirty years provides a
continuing experiment from which important lessons can be learned.
These lessons are both positive and negative. One can learn from
those that have succeeded as well as those who have failed. Among
those that have succeeded, the East Asian countries provide valuable
lessons that cannot be ignored by policy makers in other parts of the
world. Of some twenty three East Asian countries, eight stand out in
terms of economic performance. Those are Japan, the four original
tigers, Hong Kong, Singapore, South Korea and Taiwan, followed by
Indonesia, Malaysia and Thailand.1 Japan could be left out for two
reasons. Japan's high growth has been sustained over a fifty year
period, and it is by no means a developing country. The essential
questions for the Caribbean countries (as well as others), are what
were the policies that led to the recorded and undisputed success of
the seven developing countries, in East Asia? How relevant is that
experience to the Caribbean countries not only in terms of their
domestic policy environments and but also the external environment
such as the prospects posed by the presence of the North American Free
Trade Area (NAFTA)?
In order to set the tone for the discussion, it is necessary to
keep a few caveats in mind. First, the East Asian experience has been
widely interpreted by different protagonists, as confirming to their
special and own interpretation of the causes for success. And there
is wide room for this. One can avoid obvious obscuring of underlying
forces at work if such epithets such as neoclassical, and revisionist
are discarded and by looking at objective facts. Second,
concentrating only on the successful countries in East Asia should not
detract one from learning from at least one hundred other developing
countries who were not as successful to the extent and as consistently
as the East Asian countries. Third, when one talks about the East
Asian countries, it is important to note the diversity among them.
For example, Hong Kong and Singapore are small countries wholly
devoted to manufacturing with small populations and high population
densities. But South Korea, Malaysia, Indonesia and Thailand, are
relatively speaking, large countries not only in terms of their
populations but also in respect of their natural resource endowments.
Even the two small countries, (sometimes referred to as mere city
states) have different characteristics. Hong Kong was a much less
interventionist economy than Singapore. In fact many consider it a
laissez faire economy despite the large public investment in housing
to accommodate the ever-increasing immigrants from the mainland.
Singapore on the other hand did intervene more in the economy, but did
so outside of the production sector and in a manner that was based on
both foreign and domestic competition.2 Finally, the lessons from the
experience of one group of countries can be transplanted to another
group, only after careful consideration and adoption of the policy
framework in a political economy and institutional context. One group
cannot be told to imitate the other without consideration of their
initial conditions, institutions and political economy context.3
The plan of the paper is as follows. Section II gives an account
of the facts of the seven East Asian countries that are relevant for
the Caribbean context. Then the factors that are commonly assumed to
have led to the success are examined. Recently, there has been a re-
interpretation of the success of East Asian countries as resulting
from a combination of fundamentals, such as stable macroeconomic
policies and sound incentive policies as well as selective
interventions. Mainstream economists would have little quarrel with
the recent re-interpretation of the success as having been facilitated
by the fundamentals.4 This re-interpretation which explicitly
recognizes the institutional ethos of the these countries renders at
least a part of the East Asian experience irrelevant to many other
developing countries, including those in the Caribbean with different
institutional structures. Section III considers the Caribbean
context, noting the similarities and the differences between the East
Asian and the Caribbean countries. The Caribbean Group referred in
the present paper are defined to include the members of the Caribbean
Group for Cooperation in Economic Development countries other than
Belize, the Dominican Republic, Guyana, Haiti and Suriname. The group
of countries considered in the paper therefore, are Antigua and
Barbuda, the Bahamas, Barbados, Dominica, Grenada, Jamaica, St. Kitts
and Nevis, St. Lucia, St. Vincent and the Grenadines and Trinidad and
Tobago. Hence forth in the paper, the references to the Caribbean
countries are only to this set of ten countries. They can be thought
of as belonging to the same set not only in terms of resource
endowments, but also because, they have a common, geographical,
economic policy and institutional context. The Caribbean countries
are compared with the East Asian countries in terms of the factors
that led to the success of the latter in order to infer the policy and
institutional relevance for the development of Caribbean countries.
Section IV examines the external environment for the Caribbean group
with special reference to NAFTA. Section V draws the possible lessons
and the conclusions of the paper.
Section II. East Asian Experience:
Facts and Interpretation
The Facts
The undisputed facts about the East Asian experience are centered
around the high per capita income growth, the greater macroeconomic
stability and the export success of these countries. In addition
these achievements were combined with greater equity that has been
sustained. Moreover, while the world economy was subject to large
external shocks during the 1970s and the 1980s, these economies were
able to recover faster than other countries. The economic performance
of these countries is all the more creditable since they had poor
initial conditions on the eve of the reforms in the mid 1960s. While
there has been some slowing down the speed of reforms at times due to
external shocks, there were no changes in the path of reforms. This
policy consistency is another important feature of the performance of
the East Asian countries.
The four tigers - Hong Kong, Singapore, South Korea and Taiwan, had
initial per capita incomes in the range of $650 to $2300 in 1965.5
And Indonesia, Malaysia and Thailand had a range of per capita income
of $190 to $850.6 Their rapid and sustained GDP growth of nearly 8% a
year during the 1965 to 1992 period, have put them at the top of the
developing countries for GDP growth (see Appendix Table A.2). This is
in contrast to many other countries that had higher per capita income
levels in the mid sixties, but slower GDP growth during this period.
In fact many have argued that the performance of the East Asian
countries is unique in the annals of world economic history.7
The East Asian countries also achieved declining levels of
inequality with high income growth. Social indicators for this group
of countries show steadily increasing life expectancy, reduction in
the number of people living in absolute poverty, and improved access
to basic necessities, clean water, adequate shelter and high standards
of nutrition, compared to other developing countries. Of course there
are differences within the group. Indonesia with its huge population
and relatively poor initial conditions, has a greater incidence of
poverty compared to the others. Singapore has a very low proportion
of its population below the poverty line and high income all round.
This poverty and equity outcomes are closely related to the other
features of the high performance identified above.
A second feature of the East Asian countries is their macroeconomic
stability. During the 1965-92 period, the seven countries had an
average inflation rate of 9.9% (Table A.4). This average is much
smaller if the two inflation episodes of Indonesia and S. Korea were
excluded. But even these two countries that raised the average
inflation rate for the group were able to bring down inflation
rapidly. The increasing linkage between changes in domestic prices
and changes in international prices in these countries through trade
liberalization and exchange rate adjustments, helped them to see that
inflation could not be allowed to continue as it would have destroyed
their export competitiveness. The real exchange rates remained
relatively stable in these countries as well as competitive. Strong
fiscal management, particularly in Singapore, Malaysia and Thailand
was noteworthy. In addition to low inflation, these countries had
sustainable balance of payments positions. Consequently, these
countries were able to avert the debt problems of many countries
during the 1980s. Fiscal discipline, avoidance of Central Bank
financing that could have led to high inflation, the ability to meet
all its payment obligations and rapid export growth helped these
countries avert debt crises when many others had them.8 In addition,
when the countries had to adjust to adverse external shocks, they did
so without hesitation. So the negative shocks did not fester and turn
into crises and low growth.98 In addition, when the countries had to
adjust to adverse external shocks, they did so without hesitation. So
the negative shocks did not fester and turn into crises and low
growth.
The third feature of the performance of the East Asian countries is
the rapid growth of exports, particularly manufactures, starting from
a low base (Tables A.5 and A.6). As a group, the tigers have
increased their share of the world market for exports from 1.5% in
1965 to 6.7% in 1990. The other three countries Indonesia, Malaysia
and Thailand have raised their share of world trade from 1.5% to 2.2%
over the same period. As a result of the rapid growth of both exports
and imports, the trade ratios of the East Asian countries rose
significantly between 1970 and 1988. Korea's trade ratio doubled to
66%. Hong Kong's trade ratio increased by more than 70%.
The rapid growth of exports of the East Asian countries was an
important ingredient of their success. The period from the mid
sixties to the mid seventies is considered the "golden age for
exports" as the rate of growth of world trade exceeded the growth of
world income by a factor of two. However, the important point, to
remember is that these countries were able to raise their share of
world trade significantly and change the composition of trade from the
developing countries as a result.10 They did not have any special
preferences as a group. But they were able to capture the largest
share of the preferences granted to the developing countries under the
General System of Preferences (GSP) and also to get a lion's share of
the textile and the garment trade subject to the Multi Fibre
Arrangement (MFA).
A fourth feature of the success of the East Asian countries was
their high investment rates (Table A.3). This has been possible on
the basis of high savings rates that have consistently been about 30%
of GDP during the 1965 to 1990 period. Investment rates were
significantly higher than the average for some 118 developing
countries. More importantly, the share of private investment in total
investment has remained higher than 40%. In addition, there were no
deep cuts in public investments as was the case with most developing
countries during the turbulent 1980s. The provision of public goods
remained uninterrupted compared to many other countries.
Fifth, Foreign Direct Investment (FDI) played a critical role in
these economies in terms of technology transfer, employment creation,
labor force training, and foreign exchange generation. East Asian
economies acquired technology rapidly. These countries sought foreign
technology through a variety of mechanisms. All welcomed technology
in the form of licenses, capital goods imports (embodied technology),
and foreign training. Openness to FDI speeded technology acquisition
in Hong Kong, Malaysia, Singapore, and more recently, Indonesia, and
Thailand. Korea, and to a lesser extent, Taiwan restricted FDI but
offset this disadvantage by aggressively acquiring foreign technology
through licenses and other means.
A sixth feature was the high educational achievement reached in
these countries. In the case of the four tigers, universal primary
education was achieved by 1965. Even the most populous country in the
group, Indonesia had achieved a primary education coverage of some 70%
by this time. Among the four tigers, secondary school enrollment
reached nearly fifty percent of the cohort group by the early
eighties. In South Korea, secondary school enrollment reached 80% by
1987. In addition to the widening coverage, the quality of education
improved steadily. By one account the South Korean secondary school
students performed better than their American and European
counterparts.11
Seventh, high growth achieved in these countries was due not only
to the accumulation of physical and human capital, but also due to
total factor productivity growth. This is the growth that takes place
independent of the increase in inputs. In the East Asian countries,
some two thirds of the growth arose from factor accumulation. But a
full third was due to total factor productivity increase. This is
substantially large compared to other developing countries.12 Total
factor productivity growth is associated with allocative efficiency,
technological catch-up, increasing returns and organizational changes.
Eighth, the labor markets functioned well in East Asia, in the
sense that they were able to match the needs of industries with the
preferences of the labor force. There was a pool of skilled labor
that facilitated easy allocation of labor from one activity to another
and wage determination was largely market determined. While real
wages increased with increased productivity, there was minimal
segmentation of labor markets. The latter meant that workers of
similar skills earned similar wages in different parts of the economy.
Rapid growth of the economies helped to increase labor market
flexibility. Labor was prepared to accept performance-related wages,
such as bonuses and incentive payments that varied with the level of
profits. To be sure there were restrictions on labor union activities
in Korea, Taiwan and Indonesia. But the governments did not repress
wages.
The Interpretation of the East Asian Experience
Most mainstream economists would agree that the remarkable
achievement of the East Asian countries is a combination of good
policies, appropriate institutions and stable governments.
The policy content of the success can be addressed in terms of
stable macroeconomic policies that can be seen in the avoidance of
large fiscal deficits, inflation and appreciation of the exchange
rate. Those produced the conditions for high saving opportunities and
the proper evaluation of investments, which in turn led to high rates
of both physical and human capital accumulation. Both these types of
investments had high pay-offs in the East Asian countries. The
consistent pursuit of stable macroeconomic policies and the readiness
to take strong action to counter negative external shocks and to
manage positive shocks saved these countries from getting into stop-go
policy routines. Private sector investment in total investment was
relatively high given the credible macroeconomic policies. In this
environment, private entrepreneurs made sound investment decisions.
Public sector officials played a leading role particularly in the
early stages of industrialization once the private sector chose the
avenues of investment, in the cases of South Korea and Taiwan and to a
lesser extent in other countries. Singapore had more state direction
as to the choice of technology during the 1980s. In the event, it
failed to increase the skill content of production, but the country
was able to adjust to its normal high growth during a short period.
A second aspect of the policy formulation was the importance given
to incentive reforms, beginning with the adoption of outward oriented
trade policies, reduction of the bias against exports by compensating
for the import controls through duty free status, wastage allowances
and automatic access to import. Past analytical work has noted that
these trade regimes were neutral.13 However, neutrality was achieved
through intervention rather than leaving the production decisions
entirely in the hands of the private sector as was the case of Hong
Kong.14 Outward orientation, open access to private foreign capital,
and the use of the international and the domestic market in
competitive and contestable environments were important ingredients of
openness. This provided for a better allocation of the large amount
of savings in high return investments and provided easy access to new
technology. The result was higher productivity of both physical and
human capital.
A somewhat controversial aspect of the interpretation of East Asian
policy arises in the area of selective intervention. While there was
a steady hand of the government that assured political stability and
credibility of economic policy, some have argued that a deliberate
choice was made to distort incentives through intervention. In other
words, the institutional dice was loaded, with public officials not
only "governing the market" but public policy deliberately distorting
prices to reduce the price of capital and "to get the prices wrong."15
The theoretical and empirical basis to support this view is skimpy at
best and is largely based on anecdotal evidence, and the balance is
heavily tilted in favor of the mainstream economist's position that
distortions detract from better allocation and lead to departures from
neutrality. And these departures may not be justified from a
productivity point of view.16
According to this view, industrial targeting, picking winners and
credit subsidies and other instruments have been used with success in
at least three of the four tigers. Yet the weight of the empirical
evidence does not support the view that the success of the East Asian
countries was the result of interventions through credit subsidies,
deliberate under pricing of capital and the use of quotas for
promoting import substitution. The answer to the question whether the
three tigers, South Korea, Singapore and Taiwan, could have done
better without selective intervention cannot ever be answered
adequately. However, evidence of the success of industrial targeting
as inferred by productivity is at variance with the claims of its
success. For example, despite the use of industrial targeting, the
industrial and export structures of the countries using those devices
turned out to be no different from what was predicted by comparative
advantage. And what is more, where selective interventions did take
place, total factor productivity in those activities remained below
that of the non-promoted industries.17
Finally, the institutional aspect of East Asian countries success
in based on the high quality technocrats who were said to be isolated
from political influence. They were able to manage the provision of
public goods including macroeconomic stability, credible incentive
policies and to promote competition. They are said to have been able
to closely and effectively monitor economic activities to ensure their
success. A symbiotic relationship between government and businesses
has been identified by some as an essential ingredient for the success
of these countries. Here too Hong Kong is the exception, since it
took a minimalist intervention stance and kept away from intervening
outside of public housing. The three newly industrializing countries,
Indonesia, Malaysia and Thailand reduced their previous levels of
interventions and reduced the role of the public sector in tradable
activities in the 1980s and were able to achieve considerable measure
of success in exports and output growth following these reforms.
Section III. The Caribbean Countries
in the Context of the East Asian Success
The ten countries (Antigua and Barbuda, the Bahamas, Barbados,
Dominica, Grenada, Jamaica, St. Kitts and Nevis, St. Lucia, St.
Vincent and the Grenadines, and Trinidad and Tobago) have a number of
common characteristics which are more important for their overall
economic performance than the obvious diversity among them.
Analytically, all can be thought of as small economies since no single
country can influence its terms of trade, interest rates or wage rates
prevailing outside the country. In this respect, all these countries
are similar to the East Asian countries, particularly the four tigers.
A large part of their GDP is related to the external sector. This is
a matter of smallness in the geographical sense since their resources
bases tend to be narrow. Their exports are concentrated in a few
agricultural commodities (bananas and sugar) with the exception of
Trinidad and Tobago with petroleum, and in the case of Jamaica with
bauxite. Tourism is an important foreign exchange earner for nearly
all the countries.
Although these countries have high trade ratios to their national
income, they did not have open trade regimes in the policy sense until
the late 1980s and early 1990s much later than the East Asian
countries. They have had many trade barriers until then and some have
them even now. In particular, the East Asian countries of Hong Kong
and Singapore are similar to the Caribbean countries in terms of their
sizes, the nature of their resource endowments and the sizes of
governments. But they have had open economies over a much longer
period. Hong Kong and Singapore have had open economies since the
1950s. South Korea and Taiwan since the mid sixties and Indonesia,
Malaysia and Thailand since early eighties.
Like the East Asian countries, there are significant differences
among the ten Caribbean countries. First, the members of the
Organization of the Eastern Caribbean States (OECS) comprising Antigua
and Barbuda, Dominica, Grenada, St. Kitts and Nevis, St. Lucia and St.
Vincent and the Grenadines have a common currency with a fixed
exchange rate linked to the US dollar. Monetary policy is set by a
single authority, the Eastern Caribbean Central Bank (ECCB) based on
pre-set rules limiting the ability of the governments in the
organization to monetize government debt and prescribing the
relationship of foreign exchange reserves to the money stock in each
country. This is very much like the cases of Hong Kong and Singapore.
Second, of the ten countries, Trinidad and Tobago is the sole oil
exporter as are Malaysia and Indonesia. While all the other Caribbean
countries experienced negative oil shocks during the early 1980s,
Trinidad and Tobago experienced a positive shock and had to contend
with the problems of a resource surfeit at that time. This was also
the case of Malaysia and Indonesia. Third, nearly all the countries
have large tourist sectors. Consequently, these countries were
relatively more affected by the recessions in the Unites States and
Europe. Finally, all, except Bahamas, are members of the Caribbean
Community (CARICOM) while the East Asian countries are members of a
rather loose union (the ASEAN) that gives a greater leeway to change
their tariff regimes.
GDP Growth
The Caribbean countries are relatively well off compared to the
other developing countries and are certainly well off compared to the
East Asian countries at the beginning of their reforms. Per capita
income for the majority of the Caribbean countries in 1992 is in the
$2000 to the $5000 region with Bahamas as an outlier having an income
level of over $12,000, and Jamaica with an income level less than
$1350 (Table A.1). During the 1980s many countries experienced
declines in their income levels due to the viscidities they faced.
The ten countries as a group had better GDP growth compared to the
majority of the countries in the rest of the world but rather poorly
in comparison to the East Asian countries. Their average GDP growth
was 3.2% for the 1981-92 period. This compares with a 7.9% for the
seven East Asian countries for the 1966-92 period. GDP growth was
dispersed among the Caribbean group of countries as shown in Table 1.
Table 1: GDP Growth: 1981-1992
Country GDP Growth (%)
Antigua and Barbuda a/ 5.8
Bahamas a/ 2.1
Barbados 0.5
Dominica 5.3
Grenada 3.8
Jamaica 1.9
St. Kitts and Nevis 4.3
St. Lucia 4.4
St. Vincent and the Grenadines 6.0
Trinidad and Tobago -2.4
Group 3.2
Source: World Bank.
Note: a/ 1981-1991.
Investment and Saving
The gross domestic investment rate exceeded 30% for Antigua and
Barbuda, Dominica, Grenada, and St. Kitts and Nevis, St. Lucia and
were in the same range as the East Asian countries but the latter have
had it for three decades. Of these, Antigua and Barbuda, Dominica and
St. Kitts had GDP growth rates that exceeded 4% and were the highest
for the group. Grenada had a high investment rate but GDP growth of
3.8% (Table 2).
As to be expected, low growth was associated with low
investment rates, below 20% as was the case of Bahamas and Barbados.
All the other countries in the group had investment rates above the
20% range but had varied output growth given different productivity
levels. As in East Asian countries, high GDP growth was more related
to share of private investment in total investment.
The savings side of the story parallels that of investment in
terms of the time path of savings (Table 2). Savings remained below
investment for the group given that almost all were experiencing
current account deficits and receiving capital. This has been the
historical pattern with increased current account deficits arising
from the terms of trade and interest rate shocks of the early
eighties. One exception to the typical relationship of domestic
savings to investment for the group was the Bahamas, which had an
excess of savings over investment, due to its status as a
international financial center.
Table 2: Investment and Savings: 1980-1992
Country Investment/GDP(%) Savings/GDP(%)
Antigua and Barbuda 34.3 a/ 11.2 a/
Bahamas 19.0 25.2 b/
Barbados 19.4 b/ 15.3
Dominica 3.4 f/
Grenada 37.5 8.2
Jamaica 21.4 18.3 e/
St. Kitts and Nevis 40.8 c/ 11.0 c/
St. Lucia 35.8 d/ n.a
St. Vincent and the Grenadines 29.9 e/ 8.2 g/
Trinidad and Tobago 21.4 c/ 24.7 e/
Group 29.1 13.9
Source: World Bank, IMF.
Notes: Based on averages for the period.
No savings data for St. Lucia.
a/ 1987-1991; b/ 1980-1987; c/ 1982-1992;
d/ 1986-1991; e/ 1980-1991; f/ 1980-1989; g/ 1980-
1988.
Macroeconomic Stability
Fiscal outcomes played a central place in the economic
performance of the Caribbean countries. First, the large size of the
government in these economies meant that fiscal outcomes had a strong
impact. Second, fiscal policies were used to maintain aggregate
demand in the face of negative shocks that these countries
experienced. Consequently, the recovery was more protracted compared
to the East Asian countries. Third, fiscal revenues in the Caribbean
countries were more susceptible to commodity price movements given the
dependence of revenues on a narrow export base including the revenues
related to tourism. Finally, public investments and savings were
prominent in gross domestic investment and savings.
Fiscal deficits as a proportion of GDP were in the range of 2
to 8% of GDP for Barbados, Jamaica, Antigua and Barbuda and Grenada.
In contrast, St. Vincent and the Grenadines and St. Lucia had fiscal
surpluses (Table 3). Many countries continued to have large fiscal
deficits that stood in the way of stability and better growth
performance. Antigua and Barbuda, Barbados, Jamaica and Trinidad and
Tobago continued to experience
Table 3: Fiscal Deficit and Inflation: 1981-1992
Country Fiscal Deficit/GDP(%) Inflation(%)
Antigua and Barbuda 8.1 a/ 5.5 b/
Bahamas 2.1 b/ 6.2
Barbados 7.5 b/ 6.5
Dominica 2.7 c/ 6.5
Grenada 5.4 d/ 6.2
Jamaica 6.7 e/ 20.7
St. Kitts and Nevis 2.0 f/ 4.7 b/
St. Lucia -0.2 b/ 5.7
St. Vincent and
the Grenadines -0.1 g/ 5.5
Trinidad and Tobago 4.1 a/ 10.7
Group 3.8 7.8
Source: World Bank, IMF.
Notes: Based on averages for the period.
a/ 1987-1992; b/ 1980-1991; c/ 1985-1990; d/
1984-1991; e/ 1980-1985, 1988-1991; f/ 1982-1990;
g/ 1980-1990
fiscal problems that were of a more endemic nature.18 An
important element in the growth in deficits for most countries was
their inability to contain expenditures in the face of negative
external shocks as well as expenditure booms due in part to rising
public sector wages and from transfers to state-owned enterprises.
With large deficits in some countries that were initially
financed from external sources, there was less of an association
between fiscal deficits and inflation. However, as the access to
foreign capital was reduced at the time of the debt crisis in the
early eighties, the countries with high deficits resorted to money
creation as the mode of financing. The money stock expanded. This
sequence did not obtain for the OECS countries. First, their ability
to raise fiscal deficits was limited by the rules of that monetary
arrangement. Second, there was a fixed ratio of reserves prescribed
for money stock that limited the extent of credit expansion.
Consequently, it is no accident that among the countries that had low
inflation rates for the whole period, the OECS countries were
prominent. The same was true for Hong Kong and Singapore which also
have currency board systems. For all East Asian countries, the
average inflation was 6.2% for the 1980-92 period (Table A.4).
The average inflation rate for the Caribbean countries was 7.8%
for the 1981-92 period. Jamaica and Trinidad and Tobago had the
highest rates of inflation.
The Exchange Rate Regimes
These Caribbean countries had two types of exchange rate
regime. The OECS which has a fixed exchange rate system linked to the
US dollar under a single central bank, the ECCB. This monetary
arrangement has the characteristics of a currency board for each
country. The fixed rate could only be changed by unanimous agreement
and it has as one of its rules a strict relationship of the money
stock to the level of external reserves with full convertibility.
There are other countries in the group that have fixed exchange
rates without the self imposed monetary rules and without the fiscal
discipline of a currency board system. Thus, Barbados and the Bahamas
have fixed exchange rate systems pegged to the US dollar. Except for
Barbados the others in the group have changed their peg in recent
years.
Jamaica and Trinidad and Tobago have freely floating exchange
rate systems. The adoption of freely floating rate in these countries
has been a recent phenomenon linked to the reforms of the late 1980s.
With freely floating exchange rates, these countries have been able to
allow the exchange rate to play its role as an adjustment instrument.
Earlier, the policy makers had limited number of instruments to adjust
to macroeconomic shocks and to maintain external competitiveness.
The evolution of real effective exchange rates has followed a
predictable pattern (Table 4). Countries with high inflation and
fixed exchange rates have seen the most appreciation of their
currencies. Bahamas and Barbados with fixed exchange rates also found
their exchange rates to be appreciating. Many countries that had
experienced appreciations during the mid 1980s devalued or adopted
flexible exchange rates. Jamaica was able to offset the appreciation
of their currencies by adopting floating exchange rates. The East
Asian countries adopted flexible exchange rates since the early 1970s
and they did not allow their exchange rates to appreciate to any
significant degree. Their real exchange rates were relatively stable.
To sum, the macroeconomic outcome of the Caribbean countries
stands in contrast to the East Asian countries in important respects.
Namely the Caribbean countries had high fiscal deficits, high
inflation rates and more appreciated exchange rates as well as large
balance of payments deficits resulting in rapid external debt
accumulation. In addition, the Caribbean countries had lower public
savings rates. Moreover, policy responses to external shocks were
slower leading to protracted periods of adjustment with adverse
effects on the provision of public goods.
Trade Performance
The Caribbean countries have high trade to output ratios, since
they are small economies (Table 5). The high trade ratios imply that
terms of trade shocks figure prominent in these countries and those
shocks were large during the 1980s arising from the oil and other
commodity price shocks.19 The other important feature of the trade
system is that many countries had trade regimes that discriminated
against exports and favored production for the domestic market. This
is in sharp contrast to East Asian economies that reduced their import
protection early and did not allow a bias against exports to develop.
Table 5: Openness and Exports: 1980-1991
Country Trade/Output(%) a/ Growth of Exports(%)
Antigua and Barbuda 108.4 9.8
Bahamas 55.9 -6.8
Barbados 61.0 1.7
Dominica 90.0 22.8
Grenada 82.8 8.3
Jamaica 68.3 2.2
St. Kitts and Nevis 97.1 5.9
St. Lucia 100.0 16.1
St. Vincent and
the Grenadines 111.9 n.a
Trinidad and Tobago 56.4 -2.0
Group 83.2 6.5
Source: World Bank.
Notes: Based on averages for the period.
a/ Ratio of Merchandise Exports plus
Merchandise Imports to GDP.
Trade performance for these countries is indicated more
accurately with export performance. Three important feature of export
performance for the group stand out. First, export performance was an
important determinant of GDP growth in these countries. Dominica, St.
Vincent and St. Lucia had export growth rates exceeding 16% per annum
for the whole period. Their GDP growth performance paralleled that of
their export performance. Second, the commodity composition of the
export trade was an important factor in the growth of exports.
Finally, for each country, export growth rates varied considerably
over the period.
The trade performance of these countries was related to the
preferential access to the US and European markets. It helped these
countries to increase export receipts. This is in contrast to the
East Asian countries which had no special preferential access.
Instead, they utilized preferences available under the GSP to all
developing countries and used the MFA quota of others.
Foreign Direct Investment (FDI)
The FDI experience of the Caribbean countries is in sharp
contrast to the East Asian experience. FDI policy has been
restrictive. These related to foreign ownership of firms; the right
to buy land; the right to borrow locally; and work permits. Between
1984 and 1990, almost US$2 billion in new investment, flowed to the
Caribbean countries, as a result of the Caribbean Basin Initiative
(CBI). However, FDI in the Caribbean had a pro-assembly/manufacturing
bias, with information service operations ineligible for benefits,
lack of distinction between firms serving the export and domestic
markets, tax holidays favor quick payoffs (footloose) industries and
there is an overall lack of transparency, due to multiplicity of
criteria and government policies. Moreover, what FDI that took place
could not lead to high productivity growth given the distorted
incentives.
Educational Achievements
Most indicators of educational achievement place the Caribbean
countries well above the average for countries at a similar level of
development. For example adult literacy rate among these countries is
above 90% on average. These countries had attained universal primary
education earlier, if not at the same as the four tigers but certainly
earlier than Indonesia, Malaysia and Thailand. Secondary school
enrollment is above the average for middle income countries. Tertiary
and university education is however not high as other middle income
countries and certainly below the East Asian countries.
For productivity growth, primary and secondary school
enrollment are crucial. This has been the experience of the East
Asian countries. The issue then remains as to why the educational
achievements did not lead to significant productivity growth?
Three factors seem important. First, ability to produce comes
from employment. Structural unemployment in the Caribbean has been
around 10-13% of the labor force. During the 1980s, there was also
high cyclical unemployment of about 20% of the labor force. Second,
the earlier inward-oriented trade policies, restrictions on foreign
investment and work permits may have prevented increased access to
both technical and management knowhow. In such a situation, the
potential for learning-by-doing remained limited.
Third, the quality of education appears to have gone down.
Reduced expenditure per pupil, inability to replace competent
teachers, and education administration deficiencies could have
contributed to a reduction in the quality of education. The
probability of primary school entrants completing secondary school is
low, around thirty percent.20 In addition human capital is lost via
migration even though the returns to the countries could be higher
with migration, when the probability of unemployment is high and the
loss in income taxes from migration is captured by inward remittances
to relatives.21
Labor Market
The labor market in the Caribbean countries shows many
characteristics of limited flexibility and segmentation. Labor is
unionized. And unions influence both the level of wages, labor
practices and labor legislation. Labor has higher educational
achievements than most countries at similar levels of income. For the
most part, wage determination, labor allocation and non-wage payments
are not market determined in these countries as they are in the East
Asian countries. Consequently there is labor market rigidity and
limited adjustment to external shocks. Labor costs are also high in
some sectors and adversely affect the competitiveness of these
economies particularly on account of the sticky exchange rates.
Public sector labor practices have a strong impact on private sector
labor contracts. Public sector wages are higher for relatively less
skilled labor compared to the private sector. Conversely, public
sector wages are low for skilled workers.
The relatively high levels of unemployment co-exist with near
constant real wages, implying that adjustments in the labor market are
related to quantity rather than the price of labor. This explains the
high levels of unemployment. Moreover, the presence of significant
non-wage fixed payments robs the economies of a market based matching
of productivity increases to the wage rate. Until recently, the
existing levels of import protection helped to sustain uncompetitive
real wages while total income declined or stagnated in many of the
countries during the 1980s.
Conclusions from the Comparison
The main conclusions that follow from the above review of the
performance of Caribbean countries in comparison to the East Asian
countries are the following: First, these countries had lower GDP
growth compared to the East Asian countries but higher than other
developing countries. The Caribbean countries faced large external
shocks in the 1980s like the East Asian countries. But the effects of
these shocks were magnified on the Caribbean countries since their
exports were not diversified. The two small East Asian economies,
Hong Kong and Singapore, experienced large shocks which did not
significantly change their performance. This was due to their greater
export diversification, the flexibility of their factor markets and
their strong and rapid policy response to the shocks. Second, the
Caribbean countries had less stable macroeconomic situations compared
to the East Asians countries, in terms of high inflation rates, larger
fiscal deficits and unsustainable balance of payments positions that
led to debt servicing problems. Third, the investment ratios between
the two groups of countries were not that different. What seem
different however was the high proportion of private investment in
total investment in the East Asian countries. Savings in the
Caribbean countries as a proportion of GDP was lower, with lower
public savings. Fourth, the Caribbean countries had much lower export
growth rates compared to the East Asians countries. The concentration
of exports in a few products, the bias against exports arising from
the existing levels of import protection, uncompetitive real exchange
rates and their relative instability contributed to the slow export
growth. Being small island economies, the Caribbean countries had
high trade to GDP ratios like Hong Kong and Singapore. However the
latter were open economies, and their domestic prices reflected more
international prices, given the low rates of import protection and
competitive exchange rates. Fifth, educational achievement in the
Caribbean was better than almost all the East Asian countries on the
eve of their rapid growth, and even today the educational achievements
of Malaysia, Indonesia and Thailand are not as good as the Caribbean
for primary and secondary school enrollments. Tertiary and university
education rates are lower in the Caribbean compared to Hong Kong and
Singapore. Education quality is certainly lower in the Caribbean
countries compared to Hong Kong, Singapore, South Korea and probably
Malaysia. Sixth, labor markets are more rigid, less able to allocate
labor efficiently in the Caribbean compared to the East Asian
countries. And there is evidence of lower productivity in the former
group, in terms of lower growth in total factor productivity.22
Finally, the Caribbean countries had preferential access to the US and
the EC, and were subject at least in part to a regional trading
agreement, while East Asia had a more loose arrangement under the
ASEAN.
Section IV. The External Environment
with Special Reference to the NAFTA
In contrast to the East Asian countries, Caribbean countries
depend on a number of preferential trading arrangements. First, these
countries are member of the Caribbean Community (CARICOM), in which
trade among the group is subject to least restrictions and trade with
the rest of the world is influenced by the common external tariff
(CET) and other provisions of CARICOM. While many of the provisions
have exemptions that are not closely followed or implemented, it is
nevertheless an important factor in the trade relations among them and
with the rest of the world.
In addition to CARICOM, there are preferential agreements such
as the preferential market for bananas in the United Kingdom, and the
European Community. Then there is the L"me Agreement on sugar
protocol which provides guaranteed access to sugar for these
countries. There are three US related preferences. Under sections
806\807 of customs regulations, and the Caribbean Basin Initiative,
garments and electronics enter the US with low duties arising from the
exemption on the use of US inputs (only value added in the Caribbean
countries is subject to import duties). US provides guaranteed access
through a sugar quota as does the European Community (EC).
These various preferences increase the amount of exports to the
US and European markets. They involve a subsidy from the importing
countries and reduced competition from other producers of similar
products. However, these concessions are not bound.23 The
concessions and assistance granted under the CBI were at least partly
offset by the reductions in the US sugar quota.24 They help to
preserve the pattern of exports and production and have contributed to
the presence of some inefficient producers such as some banana
producers who could not have survived a regime of equal access of
other producers to these markets. This was certainly not the case for
the East Asian countries. To be sure, they had access to the US and
European markets to the same extent that other developing countries
also had. There was no instance of preserving a part of the
production for protected markets like that of bananas and sugar.
In the minds of the Caribbean policy makers, the biggest
concern appears to be NAFTA. This arises from a number of factors.
The first is the fear of exclusion. This is related to the potential
for being penalized from the rules of origin granted to Canada and
Mexico and to other potential members. Second, there is the threat of
the loss of preferential access in terms of reduced quotas and
increased tariffs. Third, is the concern about more administrative
protection, with limited recourse to dispute settlement for those
outside NAFTA.
Mitigating these concerns are the following. First, NAFTA does
not lead to the increases in explicit protection and the agreement's
implementation is spread over fifteen years. Therefore, a likely
erosion of preferential access will not take place overnight. Second,
the Caribbean countries have the opportunity to enter NAFTA according
to its rules of accession. Third, there may be possibilities for
preserving at least a part of the existing preferences by special
bilateral concessions from the US and Canada given the existing
agreements such as the CBI and CARIBCAN. Finally, general trade
liberalization under the Uruguay Round could help the Caribbean
countries with the planned reduction in tariffs under the Round, the
phasing out of MFA, and reduction in agriculture subsidies in EC. The
Caribbean countries would have to produce textiles and garments, other
manufacturing and agricultural goods, at lower costs compared to
competitors and take advantage of the proximity to the Northern
markets.
What are the implications of NAFTA to the Caribbean countries
given the above general considerations?25
The two main unilateral preferences that are granted by the US
to the Caribbean are the GSP and the CBI. The changes in these
arrangements related to NAFTA will have greater effect on countries
that are exporting more to the North American and Mexican market. Of
the countries that are more likely to be affected by NAFTA, Bahamas is
in the lead, given the concentration of its trade in that region. The
least effected would be Dominica, Grenada and St. Lucia. Their
exports are concentrated in Europe. It is also important to note that
Caribbean exports themselves are concentrated. For example Antigua
and Barbuda exports only 67 tariff lines to US compared to the total
of some 8700 tariff lines in the US tariff code. There is even
further concentration of exports receiving preferential treatment.
For example, 82% of the exports enter the US duty free. For the
Caribbean countries as group, some 58% of the tariff lines enter duty
free of duty on average. But a country like the Bahamas has 92% of
its tariff lines duty free. When there are tariffs, they tend to be
low compared to other exporting countries due the special status
arising from CBI and related US concessions. However, individual
products carry higher duties, as is the case of footwear and textiles
that are exempt from CBI.
The impact of NAFTA on the Caribbean countries will depend on
the extent to which Caribbean exports are competitive with Canada and
Mexico since the latter two countries will have duty free access.
However, it is noteworthy that Mexican textiles and garments exports
to the US and Canada will continue to be subject to the MFA. And
these quotas will remain until the MFA is finally discontinued fifteen
years down the road. Trade displacement due to NAFTA would be highly
concentrated in a few textile and clothing products and uppers of
leather footwear. US tariffs on footwear is already small at some 3%,
while those on textile and garments are high though this will be the
same for Mexico. In the case of knitted and non-knitted clothing,
some diversion could be expected given that Mexico would have reduced
tariffs even within its country quota. Thus Caribbean clothing will
have to complete more with Mexico, given the latter's low wages rather
than with US and Canadian textile producers. This reinforces the
analytical point that trade diversion will take place to the extent
that potential Mexican exports are substitutes for Caribbean exports.
Possible trade diversion away from the Caribbean countries due
to NAFTA is expected to be small. Static diversion measures based on
partial equilibrium analysis put the diversion of Caribbean exports
from the US to be somewhat small. But static measures could
understate the impact. But even if it is assumed that a 3% diversion
takes place, the impact still would be small, some $120 million out of
a total export figure of nearly $5 billion. Displacement by Mexican
textiles would also be small, given that its share of the US market is
small, less than 3%. In addition, NAFTA has certain domestic content
requirements that will also constrain Mexico's ability to increase its
competitiveness in the US market. Of course, these totals hide the
individual impact of different Caribbean countries. It is fair to
conclude that NAFTA will erode a part of the unilateral preferences
granted to the Caribbean countries.
The other concern about NAFTA is its likely impact on FDI. FDI
is around 8% of total investment in the Caribbean countries. The
issue is whether FDI which goes to the Caribbean countries from the US
and Canada will now be diverted to Mexico. To consider this issue, it
is important to know the relative foreign investment regimes in Mexico
and the Caribbean. One advantage that Mexico has is that NAFTA binds
its investment regime and indeed over time it will be harmonized with
US and Canada. Assuming that this harmonization will take time to be
achieved, it is the trade diversion factors that help to determine
investment diversion.
The trade regime, investment climate, legal system, labor
regulations, land titling, adequate infrastructure and tax codes are
the principal factors that would determine the relative FDI flows.
For labor seeking type FDI, it is necessary have a well trained labor
force, transparent and reliable labor laws. For component out-
sourcing, rules of origin come into play. So even if components can
be produced at low costs in the Caribbean countries, only a part of
the component's value added would have tariff free status. NAFTA
would apply rules of origin to textiles, clothing and motor cars.
Mexico's duty free status would apply only to value added in that
country. This has been designed to prevent others from using Mexico
as an "export platform".
The US gives tax preference treatment for investments in the
Caribbean countries under the CBI. Investment in the Caribbean
qualify for tax exemption status in relation to Section 936 of the US
tax code. However NAFTA does not provide similar tax treatment.
Meanwhile, Mexico becomes more attractive because the binding of the
investment laws in Mexico with NAFTA. It gives Mexican laws more
credibility to investors. It is difficult to predict to what extent
an FDI diversion could take place due to NAFTA. That depends very
much on the attractiveness of the climate for FDI in the Caribbean
countries in relation to Mexico.
Section V. Lessons and Conclusions
The validity of inferring policy lessons from one experience to
another depends on the particular political economy and institutional
contexts. To infer lessons from the East Asian experience to the
Caribbean context, one can note some similarities in the institutional
arrangements, even though the political economy contexts are
different. It is Hong Kong and Singapore that the Caribbean countries
can relate to in the institutional context, given the British colonial
experience shared by both groups of countries, where the laws and the
administrative systems have close affinities. One feature that is
dissimilar is the presence of strong unions in the Caribbean compared
to the two Asian countries. Policy formulation undoubtedly has to be
influenced by this fact given the strong democratic tradition in the
Caribbean. This similarity also breaks down when it is noted that the
Caribbean countries have significant agricultural activities. In
fact, many are principally dependent on sugar or bananas.
The policy lessons from the East Asian countries relate to all
the countries. If anything the clearest lesson that emerges from that
experience is the importance of good policies for economic success.
The other is that the physical endowment is not as important as human
capital. The Caribbean countries have good initial conditions in
respect of human capital with high literacy rates, primary and
secondary school enrollment.
In terms of fundamentals on which all mainstream economists
must agree, the lessons are as follows.
Maintain macroeconomic stability. This allows the incentive
policies to work. It gives confidence to private sector agents to
save and invest and prevents the unproductive phenomenon of stop-go
policies. The prime instrument to secure macroeconomic stability is
good fiscal policy. To be sure, this is a challenge for small
economies which are subject to large external shocks given their size
and openness. However, the antidote to external instability is
greater price flexibility, carrying sufficient reserves and
maintaining adequate borrowing capacity. For the Caribbean countries
at this juncture, there is a need to consolidate the reforms of the
mid eighties and to preserve the stability that has been achieved.
Raising the incentives for saving through stability and financial
sector reform would be an important feature of the policy agenda. The
corollary to this is to raise public savings. Proper exchange rate
policies would help too, by discouraging the flight of capital in
search of high rates of return. It is not the type of exchange rate
regime per se that is important for maintaining competitiveness but
the proper macroeconomic stance. This was the message of the
different inflation outcomes related to the OECS and the other
countries in the group.
On the incentive side, there is a good opportunity to increase
productivity. It was noted that the investment rates between the two
sets of countries were not all that different. But there were
considerable differences in GDP growth outcomes. Steadier public
investment rates, greater role for private investment and
complementary public investment in infrastructure should move in
tandem with the incentive reforms needed in trade, regulatory
environments, the tax system and the treatment of FDI.
Completing the trade reform agenda will be crucial for
increasing competitiveness. There are as yet many quantitative
restrictions in operation. In some cases, the effective protection
rates are as high as 100%. There is a significant bias against
exports, of the order of 35% to 40% that proffers a cost advantage to
external competitors of the Caribbean countries. And there are many
taxes and levies that have differential impacts on levels of
protection within CARICOM, which increases variance in protection. In
addition, many would consider the planned convergence of the
CARICOM's, CET to a 5-20% over a 5 year period somewhat slow and
consequently the transport cost advantage of the Caribbean to the
NAFTA market may be nullified. To exploit these trading opportunities
there must be adequate infrastructure such as port facilities,
telecommunications and transport to export and import points. There
is a new regime for services opening up in the region with the
completion of the Uruguay Round, and the Caribbean is well placed to
benefit from it if appropriate investment in communications, and
policy reforms in the services sector ranging from tourism, insurance,
data processing to health services are undertaken.
Educational quality can be raised with proper policies to go up
the technological ladder quickly. In the Caribbean, the number of
trained graduates leaving college has declined while expenditure per
pupil has fallen. Meanwhile, the business sector finds a dearth of
trained staff for management, finance and technology jobs. This
inhibits future technological advancement, a crucial ingredient for
competition in emerging fields such as services.
Labor market issues have to be addressed in a number of
dimensions. Public sector wages influence private wage settlement and
introduce an upward bias on unskilled labor and a downward bias
against skilled labor. Excess labor in the public sector had been put
at 10 to 50% of the labor force depending on the country. Labor
management is dispute ridden and this increases the costs of labor
particularly in highly unionized countries. Adjustment to negative
external shocks is made more difficult due to labor market rigidities.
Unemployment rather than real wage adjustment is the result. There is
thus a substantial agenda for labor market reforms. This would
require a more consensual approach to resolution than has been the
practice in the Caribbean.
In terms of the external environment, particularly in the
context of NAFTA, few lessons and conclusions emerge. The Caribbean
countries will face a more competitive world in the future. Its
preferential access is eroding. While every effort must be made to
keep the preferential access from a national welfare point of view,
the preferences have been a two edged sword. It renders at least a
part of the agricultural exports non-competitive and consequently
there is a need for adjustment. This is particularly true with
bananas. The cost disadvantage in banana production has been offset
by guaranteed access under the EC banana regime. These are not being
eroded markedly. In the meantime, it might be advisable to reduce the
pass-through of the benefits of preferential access to the producers
inducing them to switch to alternative activities and invest those
funds in high return activities that will support export
infrastructure.
Finally, while the static estimates of the impact of NAFTA are
not large, it will have strong impact on some of the countries that
have exports concentrated in the Northern market. The adverse impact
of reduction of preferences could be to some extent compensated by
increased access from the Uruguay Round, particularly with respect to
textiles and garments. Nevertheless, the Caribbean must remain ready
to compete with the rest of the world as the MFN access increases.
There is a strong rationale for the Caribbean countries to enter NAFTA
individually or through the auspices of CARICOM or related
arrangements. This will give the Caribbean countries similar access
as Mexico. NAFTA should be seen as an opportunity and not as a
threat. It might help to rally domestic support for reform and to
lock in the reforms through an accession agreement.
To sum, there are important lessons for the Caribbean countries
to learn from the East Asian countries. As far as the fundamentals
are concerned, these lessons are highly appropriate for the present
state of development in the Caribbean. As far as the institutional
aspects are concerned some adaptation is necessary, taking into
account the political economy aspects, particularly union activity and
their power. A consensual approach seems fruitful.
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Endnotes
_______________________________
*The author is grateful to Cherian Samuel for research assistance
and to Joy Troncoso for technical assistance in producing the
document.
1.In a recent study undertaken by the World Bank, eight
countries were considered. These were Japan, the four tigers,
Indonesia, Malaysia, Thailand and part of China. See World Bank
(1993a) and Leipziger and Thomas (1993).
2.The differences between these two economies have been well
documented by Krause (1988). The differences among the whole
group are emphasized by others. See Petri (1993).
3.Thus, Robert Lucas has remarked that asking countries to
follow what South Korea did with its economy is like asking any
aspiring basketball player to follow the Michael Jordan model.
See Lucas (1993).
4.See World Bank 1993 (a).
5.In 1965, per capita incomes were: Hong Kong $2284, Singapore
$1678, Korea $652 and Taiwan $1157 in 1987 US dollars.
6.Indonesia's per capita income was $193, Malaysia's $846 and
Thailand's $354 in 1987 Us dollars.
7.There are a host of studies that have examined the industrial,
trade and development issues of these countries. They include
Little et al. (1970), Balassa (1971), Bhagwati (1978), Krueger
(1978), and Michaely et al. (1991).
8.Indonesia was the exception. It had a debt crisis in 1975,
when the state owned oil company got into difficulties in
servicing its large short term debt. This produced the Pertamina
crisis. That crisis seem to have had a cathartic effect on
Indonesia which has maintained a close watch of its public
enterprises to avoid the possibility of another debt problem.
See Woo and Glassburner. (Forthcoming).
00. Riedel (1987).
11. See Birdsall and Sabot (1993).
22. See Elias (1990) total factor productivity growth estimates
for 1950-87 period: These countries are at the top of a large
sample of countries.
33. See survey by Lal and Rajapatirana (1987).
44. It does not seem to matter for success whether neutrality is
achieved through domestic subsidies or trade measures. In fact,
neo-classical literature supports the use of domestic subsidies
to offset domestic distortions (see Bhagwati, Ramaswamy,
Srinivasan, 1969).
55. Wade (1990), Amsden (1989).
66. In the case of Taiwan, the government's selective promotion
has had no effect on investment and productivity. See Yang
(1993). This is also confirmed in a recent study where the
authors attempted to relate output growth in certain sectors in
Japan to instruments of selective promotion. See Beason and
Weinstein (1993). In Korea, activities that were not promoted
had higher TFP point than those promoted. World Bank (1993a).
77. See World Bank (1993a). Singapore had no total productivity
growth in the early eighties when it tried to intervene in labor
markets to bring about the use of more advanced technology.
88. These figures may overstate the extent of fiscal deficit,
since a continuous time-series for the 1980-1992 period was
unavailable. However, there was sporadic fiscal instability in
these countries in the late 1980s, specially in the case of non-
OECS countries. For instance, Antigua and Barbuda maintained
high fiscal deficits in the late 1980s and early 1990s and
"financed" them through external debt arrears.
99. The extent of a terms of trade shock depends on the price
change and the trade ratio for each country. For example, the
external shock for Jamaica during the 1980s amounted to 4.3% of
GDP on average. Trinidad and Tobago experienced large positive
shocks in the 1970s of 10% and a negative shock of 7.6% of GDP in
the 1980s. See McCarthy and Zanalda (1993).
00. World Bank (1993b).
11. The immigration rates were 14 per thousand for Antigua and
Barbuda, 22 per thousand for St. Kitts and Nevis and 10 per
thousand for Barbados. See World Bank (1993b).
22. A recent study has recorded low factor productivity growth
for Dominica, St. Lucia, St. Vincent and Grenadines, Barbados,
Jamaica and Trinidad and Tobago (World Bank 1994).
33. The new banana regime in European market that came into
effect in July 1, 1993 is non-transparent; quotas are to be set
annually and quotas cannot be transferred among the producing
countries.
44. This is noted by Krueger (1993).
55. This section of the paper draws on the work of Yates et al.
(1994).