Economic performance in small open economies : the Caribbean experience, 1980-1992

The authors study the economic performance of ten Caribbean 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. They 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.