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
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