CENTRAL BANK OF BARBADOS

CBB Working Paper No. WP/14/5

The authors would welcome any comments on this paper. Citations should refer to a Central Bank of Barbados Working Paper. The views expressed are those of the author(s) and do not necessarily represent those of the Central Bank of Barbados

A MORE MODERN BARBADOS ECONOMY

BY

JAY MANDLE

CENTRAL BANK OF BARBADOS

COLGATE UNIVERSITY

A More Modern Barbados Economy

Jay R. Mandle W. Bradford Wiley Professor of Economics

Prepared for The Central Bank of Barbados, 34th Annual Review Seminar on "Caribbean Economies: At Risk or on the Rise" July 22-25, 2014. Revised July 16, 2014

2 I In the Caribbean, smallness of size has long been thought to be the main source of the region's weakness in achieving the technological modernization that results in economic development. Indeed, overcoming that presumed obstacle has been one of the principle motives behind the effort to achieve regional integration. In its advocacy of integration, the West Indies Commission is representative. Its report declares that "the micromarkets of small states standing alone often cannot attract up-to-date equipment and technology geared to much larger production runs and much wider applications."1

But though this view is widespread, it almost certainly overstates the impediment to development caused by a population size such as Barbados'. Iceland, a country whose population of about 325,000 is comparable to Barbados' 274,000 possesses a technologically advanced economy. Whatever problems a limited population is responsible for, Iceland demonstrates that those obstacles can be overcome.

The difference between Barbados and Iceland in the use of modern technology in production is reflected in Table 1. That table tabulates the responses of the managers and executives who answered questions posed by the World Economic Forum concerning how firms in their country deal with productivity issues. The survey was administered in 148 countries and each nation was ranked from #1 (the best) to #148 (the worst). On three of the four questions that concern the adoption of modern technology, Barbados ranks in the bottom half of nations: 81st for capacity for innovation; 78th with regard to company spending on research and development; and 61st concerning production process sophistication. Barbados' best ranking was for firm level technology absorption, where it ranked 44th. By contrast, Iceland's lowest score

1Report of the West Indian Commission, Time for Action (Kingston, Jamaica: The Press University of the West Indies, 1992) p. 69

3 was 35th for company spending for research and development, while its ranking for firm

level technology absorption was #2 in the world. That Barbados has not achieved

technological sophistication in production, but that Iceland has, is quite clear.

Table 1

Ranking of Barbados and Iceland Concerning Technology Utilization

Barbados

Iceland

Firm Level Technology

44

2

Absorption

Capacity for Innovation

81

32

Company Spending on

78

35

R&D

Production Process

61

22

Sophistication

Source: Klaus Schwab, The Global Competitiveness Report 2013-14, (Geneva: World

Economic Forum, 2013) pp. 121, 215.

Iceland's application of modern technology to production has enabled it to achieve high economic growth rates over the long term. Again, a comparison with Barbados provides perspective. As reported in Table 2, in 1970, four years after Barbados achieved Independence, its purchasing power parity converted GDP per capita exceeded Iceland's by 41 percent. But in the period between that year and 2008, when Barbados' per capita GDP reached its peak, its economy grew by only 10.6 percent. In contrast, the per capita GDP in Iceland more than doubled. The global recession experienced thereafter damaged Iceland's economy more than Barbados'. Nevertheless, in 2010, a year in which neither country had fully recovered, Iceland's per capita gross domestic product in that year exceeded Barbados' by 26.8 percent: $35,612 compared to $28,089 (Table 2).

4

Table 2

Purchasing Power Parity Converted GDP Per Capita for Barbados and Iceland, Selected Years 1970-2010

Barbados

Iceland

1970

27,211

19,204

1975

26,349

25,331

1980

24,703

31,954

1985

21,992

32,785

1990

26,127

35,758

1995

23,630

35,337

2000

28,236

37,760

2005

28,575

40,448

2008

30,097

43,180

2010

28,089

35,612

Source: Federal Reserve Bank of St. Louis, Federal Reserve Economic Data, downloaded

from research.Fred2

II

The obvious question to be addressed in why Barbados failed to master the application of modern technology to production when a comparably small country, Iceland, was successful in doing so. What does not seem to have been a work was a difference in business climate. In general, the managers who responded to the World Economic Forum survey provided a favorable assessment of the institutions governing Barbados' economy, an assessment comparable to the one provided by executives in Iceland. As reported in Table 3, Barbados' rankings on issues concerning institutions and policies were only slightly inferior to Iceland's. In all but one of the variables listed in the table, Barbados ranked in the top 75th percentile of nations and in two of them its ranking was

 ................
................

In order to avoid copyright disputes, this page is only a partial summary.

Google Online Preview   Download