Policy space under a constraining combination – open economies, austerity and small island states

Small island developing states (SIDS) face significant economic, social and environmental challenges. Current mainstream approaches to SIDS recognise these limitations and thus promote increased economic integration into the international economy to provide the governments with resources and power to counter the effects of these challenges. Yet these remedies have so far led to high levels of deficits and high levels of indebtedness, as well as high levels of vulnerability and dependence on key sectors that offer very income- and economically sensitive products and services. In addition, and in assessing the experience of Caribbean SIDS, these remedies have led to diminishing government policy space. This has in turn contributed to the lack of real innovation in the way Caribbean SIDS interact with the volatile international market. While much has been written about the economic impact of open markets and the inherent weaknesses within SIDS, the analysis herein allows for the development of a more comprehensive assessment of the implications for the SIDS’ policy space as well as their ability to regain it and develop innovative approaches that avoid uniquely reactionary measures to the current international economy and its gyrations.