VOLUME 5

RESEARCH AND POLICY WORKING PAPERS

2012

Research and Planning Unit

Economic Affairs Division
Ministry of Finance and Economic Affairs

Publishers Note: These papers are still in draft form and are subject to

revision. Please do not quote or reproduce without the expressed

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Ministry of Finance and Economic Affairs
Economic Affairs Division
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St. Michael

Note that the Research and Policy Working Papers is not intended to provide any policy
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VOLUME 5
RESEARCH AND POLICY WORKING PAPERS
2012

CONTENTS

I.

ECONOMIC
DEVELOPMENT
AND
COMPETITIVENESS:
A
CARRIBBEAN REVIEW...................................................................................5
By Antonio Alleyne

II.

EXAMINING THE CONSTRAINTS TO ECONOMIC GROWTH IN

BARBADOS: A GROWTH DIAGNOSTIC APPROACH................................19
By Derek Gibbs

III.

LINKING EDUCATION TO THE CHANGING NEEDS OF THE LABOUR

MARKETS.........................................................................................................37
By The Research Unit, Ministry of Labour and Social Security

IV.

TOURSIM FINANCING IN BARBADOS.......................................................48

By Antonio Alleyne

V.

BARBADOS, THE MILLENIUM DEVELOPMENT GOALS(MDGS): AND

THE POST-2015 DEVELOPMENT FRAMEWORK.......................................62
By Mark Durant

VI.

AN EXPLORATORY STUDY ON THE RELATIONSHIP BETWEEN

REAL EFFECTIVE EXCHANGE RATES AND IMPORT DEMAND IN
BARBADOS-A COINTEGRATION-ECM ANALYSIS...................................76
By Cyril Gill

VII.

IS THE RESTAURANT SECTOR WITHIN THE BARBADOS TOURISM

INDUSTRY TAKING ADVANTAGE OF THE BENEFITS ALLOCATED
TO THEM? (1982-2006)....................................................................................100
By Ricardo Norville

ECONOMIC DEVELOPMENT AND COMPETITIVENESS:

A CARIBBEAN REVIEW

Mr. Antonio Alleyne

Economist
Economic Affairs Division

I. ECONOMIC DEVELOPMENT
AND COMPETITIVENESS: A
CARIBBEAN REVIEW

issues related to economies of scale

(Baldacchino 1998). However, the practice
of such areas of activity have tended to
exhaust the countrys already limited
resources and provide limited employment
opportunities, which in turn perpetuate the
social issue of poverty and generally
renders such economies highly vulnerable
to external shocks.
Despite several physical and socioeconomic similarities, and all being
regarded as among some of the most
beautiful land masses in the world, there
has been little homogeneity witnessed in
the growth and development of Caribbean
economies. Each has continued to show
varying levels of economic development
related to differences in natural resource
endowments,
the
choice
of
macroeconomic, trade, and investment
policies and levels of economic
diversification. (U.S. International Trade
Commission 2008).
Adding to their existing challenges,
the move towards global economic
liberalisation in the 1990s has brought
with it significant challenges for the
Caribbean economies particularly with
regard to the issues of primary production,
since the process of trade liberalization has
resulted in a shifting of agricultural
production to more competitive regions
across the globe world (Ahmed 2001). This
inevitably forced the region to explore
alternative avenues in trading services. In
so doing, the process has also affected the
use of natural resources, the expansion of
human settlements and necessitated a
change in the development policies aimed
at addressing poverty and income
inequality, which are among the
Caribbeans most challenging issues when
confronting
sustainable
development
(ECLAC 2002).
More specifically, during this phase
of development, Caribbean economies
recognized the need to diversify the trade
regime away from the inward-looking

By
Antonio Alleyne
INTRODUCTION
The issue of being internationally
competitive has long been a critical one for
the states of the Caribbean1 region; prior
and into the 21st century. According to the
World Bank, the Caribbean region is at a
development crossroads and its member
nations must take significant and concrete
steps to improve productivity and
competitiveness and face up to more global
competition if they are to accelerate or
even maintain past growth. By taking such
steps, they will reposition themselves
strategically as an emerging trading bloc for
goods and services; without such action,
they
risk
growing
economic
marginalization and erosion of many of the
social gains of the last three decades(The
World Bank 2005).
The Caribbean region is largely
made up of small island developing states
that bear the similar physical characteristics
of being located a considerable distance
away from the main lands of larger
territories, which leaves them essentially
isolated and for the most part disconnected
from these territories. It is argued that this
positioning has had the effect of retarding
their ability to develop and achieving
competitiveness
within
the
global
economy. Coupled with these physical
constraints is the fact that historically, local
business persons focused on low-risk
business activities such as wholesale and
retail trade or services, which avoided
1

Antigua and Barbuda, The Bahamas, Barbados,

Belize, Bermuda, Dominica, Dominican Republic,
Grenada, Guyana, Haiti, Jamaica, St. Kitts and
Nevis, St. Lucia, St. Vincent and the Grenadines,
Suriname and Trinidad and Tobago.

policies of the past towards policies of

open regionalism. This meant extending its
trade links with extra-regional trading
partners and deepening and perfecting the
intra-regional integration regime and its
institutions (ECLAC 2002).
Over the years, the dependence of
Caribbean
economies
upon
the
international trade in both commodities

and services has grown exponentially.

Analysis of the data, sourced from the
World Development Indicators (WDI),
indicates that with the exclusion of Guyana
and Suriname, the average trade-to-GDP
ratio exceeded 100 percent in 2008.
Compared with the worlds average, this is
significantly higher.

Table 1: Trade to GDP in the Caribbean

Country Name
World
Antigua and Barbuda
Bahamas, The
Barbados
Belize
Bermuda
Dominica
Dominican Republic
Grenada
Guyana
Haiti
Jamaica
St. Kitts and Nevis
St. Lucia
St. Vincent and the Grenadines
Suriname
Trinidad and Tobago
Caribbean Average

2001
48.4
129.3
87.1
106.4
120.0
107.5
74.7
112.1
206.4
48.5
114.5
104.9
109.7
78.0
99.9

2002
47.8
122.4
86.2
107.6
118.7
109.3
72.8
101.2
198.2
48.1
116.3
101.2
105.5
58.4
95.0

2003
48.3
127.9
87.3
108.5
119.4
104.5
86.5
101.5
189.6
63.7
115.5
119.2
104.6
65.3
90.0

2004
51.4
132.7
94.1
115.5
109.2
106.3
83.9
109.0
201.5
59.4
108.0
118.6
107.8
74.2
96.7

2005
53.7
134.9
102.0
128.7
117.3
62.5
108.3
65.5
97.5
203.8
57.0
114.3
124.6
109.6
75.6
104.8

2006
56.5
129.3
107.8
126.4
123.2
66.8
107.9
68.0
98.8
59.5
113.2
121.4
107.3
107.0

2007
57.3
127.6
104.9
129.5
121.6
67.7
108.4
66.7
101.5
52.2
110.6
122.9
109.9
100.6

2008
59.2
126.6
95.1
130.5
132.1
62.5
108.5
64.7
93.5
56.9
110.1
109.4
140.6
110.3
103.0
100.2

Source: World Development Indicators

Within the context of increased
liberalization and open-market policies,
one of the more important components of
growth and more importantly overall
economic development is a countrys
ability to compete. While the concept of
competitiveness continues to be the subject
of much debate among academics, policymakers and such like, it is without question
a key factor in achieving sustainable
economic development. High levels of
competitiveness in the international
economy have been linked to a higher
capacity for reducing such socioeconomic
ills
as
high
levels
of
poverty,
income
inequality,

unemployment/underemployment,
and
generally
improves
the
level
of
susceptibility to external forces in the
developing economies. It is instructive to
reiterate the point at this juncture that,
Caribbean countries already suffer the
handicap, that is, the inability to enjoy
economies of scale.
To compete successfully at an
international level it is imperative to know
where a countrys competitiveness lies, and
with the Caribbean this is no exception.
Downes (2010) refers to competitiveness
as the ability of the enterprise, industry,
country to produce and sell goods and
services in domestic/foreign markets at
7

prices and with the quality that ensures

long
run
viability
and
sustainability(Downes 2010).
Further,
Bobirca and Miclaus have sought to define
competitiveness as the ability of an
economy to attract the demand not only
for its exports but also the necessary
investment to supply that demand, which
results in an improved standard of living
(Bobirca and Miclaus 2007), and overall
economic development. Therein lies the
mutual interdependence between the
competitiveness
and
economic
development for a country.
In recent years, the concept of
competitiveness has emerged as a new
paradigm of economic development. It has
been argued that competitiveness captures
the awareness of both the limitations and
challenges posed by global competition,
coupled with the budgetary constraints and
significant barriers to compete in markets
(Inter-American Development Bank 2011).
Additionally, observers of economic
development recognize that the absence
of coordination mechanisms that facilitate
taking
advantage
of
competitive
opportunities
(Inter-American
Development Bank 2003) are among the
limiting factors in achieving better growth.
The World Economic Forum has
identified twelve (12) pillars used for
measuring the competitiveness of a country
which are also factors that determine
productivity. These include, the five
overarching requirements (institutions,
infrastructure, macroeconomic stability,
health and primary education), seven
efficiency enhancers (higher education and
training goods market efficiency, labour
market efficiency, financial market
sophistication,
technology
readiness,
market size), and two innovation and
sophistication (business sophistication,
innovation) factors (see World Economic
Forum, 2009).
Based on the foregoing this paper
would seek to, highlight the hypothesis that

in order for the Caribbean to maintain or

surpass its current levels of development in
a globalized environment, activities
towards
building
their
economic
competitiveness must be undertaken. This
paper will attempt to trace the historical
stages of economic development of the
Caribbean and in so doing will also attempt
to highlight the linkages between
development
and
competitiveness
strengths from a Caribbean perspective.
ECONOMIC DEVELOPMENT
What is economic development?
Howard
(2005)
defines
economic
development as a process of structural
change which guarantees sustainable
economic growth and improvements in the
quality of life of the population. Further
deconstructed, in the current global
environment, economic development is
about
improving
and
sustaining
competitiveness at national, regional and
international levels in relation to
enhancement of businesses, and overall
improvement in human well-being.
A major goal of poor countries is
economic development or economic
growth (E. W. Nafziger 2006). The two
terms are not the same. It is argued that the
advances in the standard of living
associated with economic growth may
represent a necessary but not sufficient
condition of economic development and
the construction of a good society. Mandle
(1996), in a critique of views provided by
Guyanese economist C.Y. Thomas on what
development means in a Caribbean
context,
suggests
that
economic
development is an approach which
provides insight into how and why some
countries have been better able to satisfy
the needs of their citizens (Payne and
Sutton 2001). This implies that Caribbean
countries are competitive at varying levels.
However, Lewis lamented that by its very
nature,
economic
development
is
8

accompanied by both benefits and costs

(Lewis 1955).
Nafziger (1997) posits that
economic expansion can decrease famine,
infant mortality, and death; it gives us
greater periods of leisure; enhances art,
music and philosophy; and gives us the
resources to be humanitarian. Nafziger
emphasizes that without growth the desire
of one group can only be met at the
expense of others. He however expressed
the view that mobility, impersonality, and
emphasis on self-reliance associated with
economic
development
may
also
destabilize the extended family system
which in turn may have a negative impact
on social structures.

dependency analysis and the attempted

escape from dependency; (3) the counter
offensive of neo-liberal political economy
and the enforced embrace of the market as
the dominant philosophy of development;
and (4) globalisation and promoting
regionlism in response to questions of
national states and societies abilities to
chart their own path to development. They
also stressed that there has been force in
the forth phase (Payne and Sutton 2001).

Industrialisation and Economic

Diversification
Historically, many politicians and
social commentators strongly advocated
the need for industrial development in the
Caribbean in an effort to create
employment opportunities and to diversify
domestic production in light of the
depression of the 1930s ( Bernal, 1988;
Figueroa, 1992; Downes, 1985; Farrell,
1980). However it was the theoretical
insights of the nobel laureate, Sir Arthur
Lewis, which underpinned the coherent
strategy for industrial development in the
Caribbean otherwise known in the region
as industrialisation by invitation or simply
as the Lewis model (Lewis 1950). It
sought development by diversification of
the national economy and the traditional
Caribbean problem of dependence on
agriculture. Noteably, Lewis envisaged
industrialization as a process requiring the
simultaneous development of agriculture
and industry (Lewis 1950). Competing on
labour cost, it was believed that industry
would absorb the surplus labour emanating
from agriculture through the provision of
new jobs, thereby allowing the sector to
increase its productivity and standard of
living.
However, recognizing that the
small volume of island trade prevented
these economies from exporting on a
competitive basis Lewis recommended that
instead of exporting, the Caribbean should,
through a series of policy measures, court

IN THE CARIBBEAN
The
study
of
economic
development in the Caribbean has been
afflicted by the lack of consensus in the
region concerning the definition of its
process. Despite the small-scale residential
manufacturing activity that took place
during the early decades of the 20th century,
thoughts of economic development in the
Caribbean only really occupied the minds
of leaders after the Second World War,
following the move towards the
decolonization of the territories of the
region (Payne and Sutton 2001).
Mandle has argued that without a
solid academic consensus over the
objectives
of
development
policy,
politicians have been left without clear
guidelines concerning the target towards
which their policies should be designed
(Mandle 1996). Payne and Sutton once
described Caribbean development as a
series of bouts of optimistic endeavour
followed by disillusion (Payne and Sutton
2001). Further outlining four phases of
economic development in the Caribbean:
(1) the confident espousal of the
modernising potential of industrialisation
and economic diversification; (2) the
dependency theory - emergency of
9

foreign entrepreneurs to install and open

their businesses and factories in the islands.
This policy termed in the literature as
export-led industrialisation by invitation
(Best 1976) suggested an export-led labour
intensive strategy of industrial development
of which two variations exist (Downes,
1985).
The first variant is the outcome of
Lewis critique of the economic plan for
Jamaica, which was based on the use of
local natural resources; that is, `export-led
natural resource based industrialisation.
The second variant is based on the
experience of Puerto Rico and places great
emphasis on foreign investment and the
granting of fiscal incentives to investors
(Lewis, 1950). Lewis however argued that
reliance on foreign investment would be
temporary, since it would raise national
income, which would increase national
savings, and local manufacturers would
eventually learn the tricks of the trade and
take over from foreign capitalists as the
driving force in industrialisation (Girvan
2003).
Sir Arthur Lewis' solution that
Caribbean islands should embrace
industrialization as essential to economic
transformation was, in its full theoretical
formulation, labelled as a thoughtful and
progressive model to follow (Lewis 1950).
Unfortunately, in practice the derivative
"industry-by-invitation" policies failed to
fully implement Lewis' broader agenda of
sectoral diversification, of the need for
substantial investments in human capital
development, and diversification in the
agricultural sectors (Bernal, Figueroa and
Witter 1984).
Expressed differently, as a nation
develops, wages tend to increase, however
to sustain the higher income levels, labor
productivity must improve for the nation
to be competitive (Schwab 2011).
According to the Global Competitiveness
Report 2009-2010, as wages rise with
advancing development, efficiency of

production and improved quality of

product and service becomes the stage at
which a nation can become competitive.
To achieve this higher level, an economy
must attain higher education and training
market efficiency, labour market efficiency,
financial market sophistication, technology
readiness, market size (World Economic
Forum 2009). However, what enhances
productivity for one country is generally
not the same for another country. Thus,
the impact of the competitiveness factors
may vary across countries, despite the
similarities within the Caribbean region.

The Dependency Approach

Defined as an explanation of the
economic development of a state in terms
of the external influences - political,
economic, and cultural - on national
development policies (Sunkel 1969); the
dependency approach emerged as a critical
reaction to the conventional approaches to
economic development that emerged in
1950s. The school of dependency thought
in the Caribbean was founded on the
tenets of structural Marxism and was
promulgated by such thinkers as Beckford,
Best, Demas and Girvan. Bernal, Figueroa,
and Witter (1984) placed dependency
within the critical tradition of Caribbean
economic thought, following Sir Arthur
Lewis work on Caribbean industrialization.
Theorists
argued
that
the
dependency concept represented the
structure of Caribbean economies more
realistically than W. Arthur Lewis (1954)
dual economy model of development.
They argued that the typical firms in the
Caribbean are not the independent
competitive firms; rather, they are parts of
wider systems of decision-making and
resource allocation. Economic dependence
was seen to be a property of the economic
system at the level of the individual firm
that
complemented
the
structural
dependence of the macro economy
(Girvan, 2006).
10

During the 1970s, the dependency

doctrine became the official philosophy of
political opposition groups such as the
workers party in Jamaica and small radical
parties in other parts of the Caribbean. It
also shaped the actions of the leading
element of the People's Revolutionary
Government (PRG) in Grenada after they
obtained power in 1979. However, the
strategy proved too rigid and by very early
1980s it disintegrated into bitter conflict
and would later result in a bloody ending
(Payne and Sutton 2001).
One major premise of the
dependency theory is that poor nations
provide natural resources, cheap labor, a
destination for obsolete technology, and
markets for developed nations, without
which the latter could not have the
standard of living they enjoy (Gaavson
2002). However, according to dependency
theorists, the worlds capitalist system fails
to pay Caribbean states a fair wage for their
labour and a fair price for their exported
natural resources and agricultural and
manufactured products. By late 1970s, a
chorus of voices dissented against the
dependence theory. Some of the biggest
criticisms were:

and the perennial problems of poverty

and unemployment.
3. One need not accept dependency
as a necessarily zero sum game in
which the periphery loses, and the
centre
gains.
The
dependency
condition provides opportunities for a
win-win game, in which both
developed countries and LDCs gain
from each other.
Payne & Sutton (2001) further
stated that the collapse of the Grenadian
revolution brought this radical phase of
Caribbean development to an end, and
condemned all forms of Marxism across
the entire Caribbean region. They also
stressed that despite the theorys ability to
correctly identify the core elements of the
international capitalist agenda, which
would respond to challenges, it failed to
consider the politics by which such
challenges were to be sustained.
The neoliberal policy era began
around 1980 (Harvey 2005). Advocates
admit that in the early years neoliberal
development was implemented according
to a top-down approach, which prioritized
national economic growth above all other
concerns. As neo-liberal architect Jeffrey
Sachs
describes
it,
international
development agencies applied a 10-step
programme with few modifications from
country to country. Sachs further admits
that such a universal approach was too
rigid to accommodate the needs of diverse
economies (Sachs 1999).
In the mid 1980s, when a chartered
path to the regions development seemed
lost, the future of Caribbean states rested
solely in the hands of the United States
(Payne and Sutton 2001). Guided by the
views of neoliberalists, it was assumed that
the United States main development
objective was to create a growing number
of market-based Caribbean economies
capable of competing successfully in

1. The countries on the periphery of

development are not destined to
stagnation. So, the dependency theory
is an incomplete and inaccurate
description of the socioeconomic
conditions of lesser developed
countries (LDCs).
2. The theory does not highlight how
the countries that follow a dependent
development pattern suffer from a
variety of economic ills, such as
regressive
income
distribution,
emphasis on luxury goods, under
utilization and exploitation of human
resources, over reliance of foreign
firms for capital intensive technology,

11

international export markets. Additionally,

the neo-liberal policy was enforced by the
International Monetary Fund and the
World Bank under the structural
adjustment prescription. This required
less reliance on statism, market
intervention and import substitution than
had been the norm in the development
strategies deployed in the earlier decades
(Payne and Sutton 2001).
Throughout the 80s, Caribbean
states indiscriminately followed the
structural adjustment prescription; so far
that at a regional summit in the Bahamas in
1984, CARICOM2 heads of governments
issued the Nassau Understanding3, in
which they endorsed structural adjustment
as a conscious shift to a new development
path. Why? There were little alternatives
(Payne and Sutton 2001).
By the end of the international
recession (1980-82) the region had realised
a drastic reduction in the demand for a
number of the main exports, particularly
bauxite, petroleum products and sugar, and
a fall off in the number of tourists visiting
islands. This recession created, in effect,
three crises in one, in nearly all Caribbean
economies:
balance
of
payments
constraints, fiscal imbalances, and a
national debt crisis (Karagiannis 2003).
Desperate
for
financial
assistance,
Commonwealth Caribbean nations turned
to the IMF and other multilateral financial
institutions. As a result, their governments
were forced to follow the neo-liberal
prescription. The favoured measures were
always the same: liberalisation of foreign
exchange and import controls, devaluation
of the currency, and the deflation of
domestic demand. After following this
prescription, the economy in question was
expected to be ready to return to the
international market-place purportedly able

to achieve higher levels of exports and

economic growth (Karagiannis 2003).
Predicated on the notion that a
rising tide lifts all boats, the social costs of
these neoliberal policies, measured in terms
of unemployment, inflation, and sharply
declining living standards were immense.
Further, by the end of the 1980s,
Caribbean
economies
still
faced
fundamental structural problems associated
with the character of their production base
as well as with the distribution of their
economic assets (Karagiannis and Witter
2004). Critical analyses of the economic
and social impact of structural adjustment
did appear and had their impact, especially
in drawing attention to the peculiarly harsh
costs imposed by such programmes
(Polanyi-Levitt
1991).
Neo-liberal
prescriptions broke little new theoretical
ground and did not succeed in charting any
sort of realistic alternative course of action
for Caribbean governments in the critical
arenas of national and regional economic
management (Payne and Sutton 2001).
Upon reflection, the average annual
GDP growth for the Caribbean states has
slowed since neo-liberalism began to take
hold; dropping from 7.1 per cent in 1970,
to 5.4 per cent in 1980, to 3.0 per cent in
the 1990, to a modest rebound of 3.4 in
2000.
The 1990s were characterised by
the consolidation of the neoliberal
revolution, tempered only by the realisation
that more attention had to be paid to
human resource development if the new
technological imperatives of a globalising
economy were not to pass the region by.
Development was seen as a market-driven
private sector-led process. The role of the
state should be to meet the demands for
good governance imposed by the
international
financial
institutions
(Karagiannis 2003). The prevailing attitude
was best expressed by the then prime
minister of Barbados Owen Arthur in
1996:

CARICOM - Caribbean Community

The Nassau Understanding, a declaration issued
by the heads of government of CARICOM
countries, Nassau, 1984.
3

12

Generally, the strategy has to accept the

reality of the globalisation of economic forces
rather than hanker after a less complicated but
impoverished past. The strategy must also
recognise that the Caribbean countries, singly
and as a group, must make the transition
from the old age of preferences to the new age of
reciprocity in its international economic
relationships. In so doing, it must be designed
to minimise the costs and dislocations
associated with the transition, and to put in
place mechanisms that can allow the region to
exploit the market opportunities which are
being created by the international liberalisation
of trade and the formation of mega trade
blocs. (Arthur 1996)

compete as an individual nation, but as a

bloc or region. Bishop and Payne noted
that within the Caribbean, regional
integration has been a topic of discussion
from colonial times. In the post-colonial
era, a number of distinct phases can be
identified in the evolution of regionalism
(Bishop and Payne 2010):

Table 2: Annual percentage

growth rate of GDP at market prices for
the Caribbean
Country Name
Antigua and
Barbuda

1970

1980

1990

8.6

2.5

1.5

-5.6

6.5

-1.6

4.1

Barbados

9.5

4.7

-4.8

2.3

Belize

4.8

15.2

10.6

13.0

Bermuda

6.3

7.9

0.0

2.9

14.3

5.3

0.7

18.2

8.0

-5.5

5.7

-0.4

5.2

12.6

4.3

1.7

-3.0

-1.4

0.9

Dominica
Dominican
Republic
Grenada
Guyana
Haiti
Jamaica

Decolonisation and Federation - The

West Indies Federation lasted from
1958-1962 and was supposed to see
most of the Caribbean gain
independence as a single federated
state.

CARIFTA The Caribbean Free

Trade Association (1965-1973) was a
free
trade
arrangement
which
liberalised trade in manufactured
goods.

The Caribbean Community and

Common Market (CARICOM) 19731989, which replaced CARIFTA in
1973 with the signing of the Treaty of
Chaguaramas (Bishop, et al. 2011).

2000

Bahamas, The

12.1

-5.7

4.2

0.9

St. Kitts and Nevis

8.2

2.3

2.8

St. Lucia
St. Vincent and the
Grenadines

23.5

0.0

10.7

2.0

5.0

1.8

Suriname
Trinidad and
Tobago

-5.3

-0.5

-0.1

3.5

10.4

1.5

6.1

Caribbean Average

7.1

5.4

3.0

3.4

Resulting from the policies of the

1990s,
many
Caribbean
economies
collectively sought to protect and guarantee
regional access to markets (ECLAC 2002).
However, Professor Norman Girvan
indicated that the limited economic
integration accomplished to date has not
impacted
significantly
on
regional
economic development and the majority of
Caribbean member states do not perceive
significant benefits to be had from
deepening economic integration, especially
when the financial and political costs are
factored in. He further stated that from
2001 to 2007, intra-regional trade was
14.5% of CARICOM total trade, a modest
increase from the 8.3% recorded in 19731979 (see Girvan, 2011).
Payne and Sutton highlighted that
despite the evolution of different

Source: The World Bank National Accounts Data

Globalisation and Regional Integration

One of the characteristics of this
new economic era is the integration of
economies, where countries do not
13

theoretical perspectives, the concept of

globalisation, which has forced into being
this new era of development thought
remains far from being fully understood
(Payne and Sutton 2001). Thus the battle
for Caribbean countries to improve their
level of competitiveness and seeking
greater development remains.

Overview
of
the
Competitiveness Level

While most are based on the English

common law system there are few
exceptions, which include the Dominican
Republic, which has a system based on
French civil codes, the Haitian legal system
is based on the Roman civil law; while
Surinames legal system is based on Dutch
rules.
In terms of social systems and
standard of living the Caribbean is quite
diverse. Based on the gross domestic
product (GDP) per capita, Bermuda and
Bahamas are considered the most
developed countries of the group.
Bermuda has a (GDP) per capita adjusted
for Purchasing Power Parity (PPP) of
US$69,900 and The Bahamas US$28,700
(CIA World Factbook 2010). According to
the Human Development Report (2011)
most of the countries in the Caribbean are
classified
between
high
human
development and medium human
development; with the exception of Haiti.
On a scale of 0 to 1, the Caribbean
economies rest between 0.793 (Barbados)
and 0.454 (Haiti).
According to the United Nations
Development Programme (UNDP) Report
for 2009, all countries of the Caribbean
(except for Belize and Haiti) have high
levels of literacy compared to other
countries around the world. Currently the
average Caribbean adult literacy rate is
90.2%, compared to the world average of
83.0%.
Although
these
development
indicators can prove to be positive
incentives for investors to the Caribbean
region, they are mitigated by the number of
adverse factors that hamper the potential
of their competitiveness. Currently there
exist weak linkages between the
manufacturing and infrastructural sectors.
The protectionist policy measures, which
included tax exemptions, tariffs and quotas,
have also stifled competition and weakened
productivity while the continued support
of declining industries resulted in the

Caribbean

For decades, Caribbean production

and exports were based on preferential
access to markets; whether it was sugar,
bananas and rum to the European Union
(EU) market under the Lom Convention;
rum and tobacco to the United States
under the Caribbean Basin Initiative (CBI);
or a range of other commodities to Canada
under CARIBCAN. Trade liberalization,
market opening and access stipulations by
developed countries in the 1990s meant the
end of preferences for these economies.
The global market, which is founded on
competition that rewards efficiency and
productivity, is now the major decider of
the prospects and fortunes of countries
(ECLAC 1999). This automatically meant
that the competitiveness of the Caribbean
economies has become an increasingly
important determinant of its ability to
generate wealth from international trade.
In
attracting
international
businesses there are some factors that
should be available to an investor in
advance. These include, among others, the
government, legal and social systems,
culture, and currency strength of the
country or region (Hill 2005). Caribbean
economies offer a variety for the investor
in terms of these factors.
This variety
should be viewed as a competitive edge for
the region.
The types of government systems
that are represented in the region are:
constitutional monarchy and democracy,
parliamentary
and
representative
democracy, republic and commonwealth.
14

allocation of credit to uncompetitive

activities (ECLAC 1999). Consequently,
after decades of attempting to create a
vibrant manufacturing sector, it continues
to show signs of weakness and inflexibility
which may be damaging particularly within
the context of a liberalized global
economy. According to the United

Nations, Economic Commission for Latin

America and the Caribbean (1999), the
countries that are prepared to undertake
necessary change are more likely to
maintain and improve their rate of
development in the competitive economic
environment.

Table 3: Caribbean Latest Competitiveness Indicators

Antigua and Barbuda

Bahamas, The
Barbados
Belize
Bermuda
Dominica
Dominican Republic
Grenada
Guyana
Haiti
Jamaica
St. Kitts and Nevis
St. Lucia
St. Vincent and the Grenadines
Suriname
Trinidad and Tobago

99.0
95.8
99.7
75.1
88.0
89.1
96.0
99.0
54.8
86.0
97.8
94.8
88.1
90.4
98.7

GDP - per
capita (PPP)
2011
16,400
28,700
21,800
8,400
69,900
10,400
8,900
10,200
7,200
1,200
8,300
13,700
11,700
10,300
9,700
21,200

Caribbean Average

90.2

16,125

Caribbean Country

2009 Literacy
rate

Human
Development Index
2011
0.764
0.771
0.793
0.699
0.724
0.689
0.748
0.633
0.454
0.727
0.735
0.723
0.717
0.680
0.760

Source: CIA World Factbook - January 1, 2011

Table 4: Global Competitiveness Index and Ranking - Caribbean and Other Major Players
GCI
2001/2002
Rank Score
5
34
40
2
7

Country
Switzerland
Barbados
Trinidad and Tobago
Jamaica
Guyana
Chad
Caribbean Major Trading Partners
United States
United Kingdom

15

GCI 2010/2011
Rank Score
1
5.63
43
4.45
84
3.97
95
3.85
110
3.62
139
2.73
4
12

5.43
5.25

CONCLUSION
The
process
of
Caribbean
development over the years has been by no
means an easy undertaking. With the
implementation of varying development
theories, pioneered primarily by foreign
influences, the Caribbean remains severely
challenged with respect to its ability to
compete in the international arena. Part of
which can be attributed to an incoherent
regional understanding of the concept
competitiveness and its value for economic
development. This of course does not
overlook the handicap of limited resource
endowments faced by the countries in the
region.
From
the
periods
of
industrialisation by invitation; to the
dependency analysis phase; to neo-liberal
policy economy; the true potential of the
regions
competitiveness
was
predominantly over shadowed by the
enjoyment of preferential arrangements,
which have now for all intents and
purposes can be deemed to have run its
course.
For Caribbean countries to move
beyond the current levels of development
they
must
first
understand
the
interdependence between competitiveness
and the development process. This is of
greater importance given their endowment
challenges and the slow pace, of the
process of full integration in the region.
(Acknowledging a major characteristic of
the current economic era is the integration
of economies, where countries do not
compete as an individual nation, but as a
bloc or region.) Despite the diverse
challenges facing the Caribbean in their
ability to raise their level of development
through competition on the international
market, it must be recognised that the
foundations for this process have already
been laid. Historical experiences aside,
Caribbean economies have a number of
positive attributes to offer.
Overall, strengthening of the
current linkages between sectors combined

with the economic collaboration as a

united region, using the existing
agreements and efficiently implementing
any lingering ones, can be seen as a
position to improving the regions
competitiveness
ultimately
its
development.
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manufacturing and agro-industrial sector
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Dominica, Guyana, St. Vincent and the
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2009.

18

EXAMINING THE CONSTRAINTS TO ECONOMIC GROWTH IN

BARBADOS: A GROWTH DIAGNOSTIC APPROACH

Derek Gibbs
Chief Economist
Economic Affairs Division

19

II. EXAMINING THE

CONSTRAINTS TO ECONOMIC
GROWTH IN BARBADOS: A
GROWTH DIAGNOSTIC
APPROACH

negative economic growth and as low as

7.4%.
Consistent
single
digit
unemployment rates were possible from
2004 to 2008, a period associated with fair
economic growth.
Compared to similar small states,
outside the region, Barbados has lagged
behind. If the example of Mauritius is
taken, the data shows that for the period
1980 to 1989, its development was similar
to that of Barbados. However, with
accelerated growth after this period, driven
by higher investment and domestic savings,
Mauritius has proven to be an economic
success story with some lessons to be
learnt. Similarly, Singapore a country with a
development history similar to Barbados
has also seen great economic achievement
with consistently high growth rates.

By
Derek Gibbs
Introduction
This draft paper seeks to incite
discussion on what are the key constraints
impeding stronger economic growth in
Barbados. Equally, the paper would also
want to explore ideas as to what could be
the possible short and long-term solutions
that could be submitted for consideration
and
perhaps
implementation.
The
approach to this would be to employ the
growth diagnostic methodology framework
(See Hausman, Rodrik and Velasco, 2005)
and apply it to the special case of
Barbados, a small open economy with no
natural resources and limited financial
capacity. The study also draws on a similar
study done on Malawi by the World Bank
(2009).
The motivation for the study
comes at a time when Barbados is facing
some of its greatest challenges since the
start of the global recession late 2008. This
led to negative economic growth at the end
of 2009 (4.1%) and negligible positive
growth for 2010 and 2011. However, it
cannot be the argument that sluggish
growth is a recent occurrence. As captured
in Table 1 below, Barbados has moved
from an average annual growth position of
2.2% (1980 to 1989) to 0.8% (1990 to
1999) and 0.4% (2000 to 2011). Associated
with this has been declining domestic
savings, while the investment pattern has
been mixed. This weak growth has had an
impact on labour with the unemployment
rate, between 1980 and 2011, averaging
14.0%. Over this period, the rate would
have reached as high as 24.0% owning to
I.

II.

Barbados Growth History and

Structural Change

The history of Barbados economic

growth pre-1960s can be characterized by
sugar and basic agriculture with some light
manufacturing. However, given the control
of the sugar sector by a minority class the
drive was to diversify the economy in light
of Lewis (1950) argument for an alternative
path of development for Caribbean
countries. This line of thinking led to
greater promotion of manufacturing and
tourism, and later in the 1980s the drive
towards international business. This was all
done by encouraging direct investment.
These actions clearly marked the beginning
of a more post-1960 modern and diverse
economy.
The period 1960 to 1970 was one
associated with relatively high economic
growth. Real GDP grew at an average
annual rate of 6.8% per annum. Particularly
during the 1965-70 period Barbados would
have benefitted from favourable export for
its sugar (Downes, 2004). Post 1970,
economic growth slowed as real GDP grew
by 2.5% (1970-80). Specifically, the period
20

1970-75 was marked by economic

stagnation attributed to commodity
shortages and the oil crisis of 1973-74. The
results saw a reduction in domestic and
foreign demand and overall a fall in
domestic production. Economic recovery
was experienced during the late 1970s as
growth averaged 5.0% over the 1975-80

period. This recovery was mainly due to

lower import prices and stronger tourism
activity. However, with the event of the
1979 increase in oil prices the global
economy was back in recession which
negatively impacted the countrys tourism
and manufacturing sector.

Table 1: Comparison of Selected Economic Indicators

Period

10 Yr
Averages

GDP growth
(annual %)

Barbados
Gross
capital
formation
(% of GDP)

1980-1989

2.20

19.60

19.80

1.70

21.50

16.20

1990-1999

0.80

15.50

17.10

2.10

27.75

19.70

2000-2011

0.38

21.44

15.88

n.a.

24.70

5.20

GDP growth
(annual %)

Mauritius
Gross
capital
formation
(% of GDP)

Gross
domestic
savings (%
of GDP)

GDP
growth
(annual %)

Singapore
Gross
capital
formation
(% of GDP)

Gross
domestic
savings (%
of GDP)

1980-1989

4.30

23.50

20.30

7.80

40.90

42.30

1990-1999

5.20

28.30

24.10

7.30

33.60

48.80

2000-2011

4.00

24.40

17.30

6.40

22.10

48.70

GDP growth
(annual %)

St. Lucia
Gross
capital
formation
(% of GDP)

Gross
domestic
savings (%
of GDP)

GDP
growth
(annual %)

Small states
Gross
capital
formation
(% of GDP)

Gross
domestic
savings (%
of GDP)

1980-1989

5.89

28.20

11.80

2.30

25.30

19.20

1990-1999

5.40

24.10

16.20

3.00

26.20

21.70

2000-2011

2.60

29.20

13.60

3.90

24.70

20.88

Gross
domestic
savings (%
of GDP)

GDP
growth
(annual %)

Jamaica
Gross
capital
formation
(% of GDP)

Gross
domestic
savings (%
of GDP)

Source: World Bank Development Indicators

Between 1981 and 1982 the

country recorded negative growth. A
reversal in fortunes was not seen until 1986
when there was a noticeable increase in real
output of 9.0%. The country between 1985
and 1990 had a modest recovery as the
average annual growth rate rose to 2.3%.
This outcome was again driven by the
tourism sector which was quite buoyant
during the 1986-89 period, growing at an
average of 10.0% per annum. It should be

noted that the 1981 and 1982 slump saw

the country going into a short lived
International Monetary Fund (IMF)
standby programme.
However, by 1990 there was a
slump in economic performance as output
in most major sectors fell. Real tourism
output fell by 9.8% after growing by 10.0%
the previous year, while manufacturing
output dropped by 2.7% in contrast to
growth of 5.4% the year before. The early
21

1990s was particularly harsh for economic

growth as this period could be
characterized as one which saw low growth
rates and low real GDP per capita. From
1990 to 1995, real output fell by 1.2%, due
mainly to negative growth in 1990, 1991,
and 1992. This bleak performance forced
the Government of the day into an IMF
stabilization and adjustment programme.
With a recovery in place by 1993,
the country entered into a relatively stable
growth pattern lasting eight years (1993 to
2000) and averaging 2.9% per annum.
However, by 2001 the country experienced
a slump due mainly to the 9/11 event
which caused major disruption to tourism
activity which fell by 5.9%. Nevertheless,
growth returned by 2002 driven mainly by
the non-traded sector. This new growth
period lasted until 2008, averaging 2.3%
per annum. By 2009 with the on-set of the
great recession, the country economic
fortunes declined and to date has remained

weak even though some gains have been

made.
If a summary can be given, the
growth pattern that emerges from the data
and experiences has been one of
inconsistency and high vulnerability to
external shocks. This is captured in Figure
1 and 2, which demonstrates the high
volatility in Barbados real output, and
which could explain the struggle with high
unemployment levels. Observed also is the
fact that the country has never been able to
maintain strong economic growth. We see
this in 1979, 1986, 1997 and 2006 where
when growth rose above an average of
5.0% per annum it was followed by weaker
performances, hence the show of high
volatility. The question therefore that can
be asked is why, when we have seen other
countries like Mauritius and Singapore
being able to maintain high growth rates.
What are the constraints stopping the
country from achieving this and what are
the solutions to these constraints?

22

GROWTH DYNAMICS
III.

quite
important
for
maintaining
macroeconomic stability.
While the HRV framework has its
groundings in the standard economic
theory outlined in the Ramsey model, it is
best viewed within a simple constraint
matrix that matches symptoms with
constraints (See Hausmann, Klinger and
Wagner, 2008). Within this matrix each
column identifies a constraint and each
row represents a symptom of that
constraint. The matrix could be more
complex but for this discussion it is kept as
simple as possible.

Explaining the Methodology

The framework used to access the

growth constraints which Barbados faces is
one developed by Hausmann, Rodrik and
Velasco (2005)4. The aim is to identify the
principle obstacles to an economys
optimal rate of capital growth, which
materializes into overall economic growth.
In particular the question can be asked as
to what are the binding constraints on
investment and by relaxing these
constraints what impact will this have on
growth. Within this framework then
growth can be seen as been constrained by:

IV.

What has
Growth

Driven

Barbados

Growth in Barbados has been

dominated by exports of services mainly
tourism and international business5. While
on the non-traded side the key drivers have
been wholesale and retail, and business and
other services. While manufacturing
remains important, this sector has been on
a decline since 1997 and was overtaken by
construction in 1999 in its contribution to
real GDP. Nonetheless, there have been
some winners in the industrial sector as
exports of rum have risen significantly.
Similarly, the export of chemicals between
2010 and 2011 more than doubled, leading
to an increase in overall domestic exports.
The export of tourism services has
benefitted the country well, contributing
on average just over 13.0% to real GDP
(1980 to 2011). This is compared to the
business and other services sector which
on average has contributed just over 17%
for the same period. While the average
appears high, the reality is that the annual
contribution from the sector has been
declining. As shown in Table 2, the sectors
contribution in 2000 stood at 16.1%, but

Low social returns lack of important

factors such as infrastructure,
human capital, low productivity,
and unfavourable externalities.
Poor appropriability (environmental
factors or conditions) high taxation,
poor property rights, weak
enforcement of contracts, labour
conflict, incomplete information,
other market failures.
High cost of capital through
domestic financial markets or
external ones.
While the above constraints are
identified, it is reasonable to assume that
each country may have specific constraints
that need to be identified and set within
context. For Barbados these important
constraints could be identified as business
facilitation (by Government agencies) and
foreign reserves. For the latter, this is seen
as even more important since it is what
keeps the country moving by enabling
investment and for the payment of needed
imports. As such, the role of reserves as a
precautionary and transactional factor is

This is not captured as a specific item in the

national accounts.

This is normally referred to in the literature as

the HRV framework.

23

by 2011 this was 12.2%. While there have

been some periods were the contribution
was close too or just above the average, it
has not been consistent.
With problems ranging from
economic recession, lost of airlift and other

external threats, the constraints to stronger

tourism performance seems difficult to
resolve, particularly given the sectors
vulnerable to external shocks.

Table 2: GDP and sources of Growth

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

Contribution to RGDP - %
Sugar

2.6

2.2

2.0

1.6

1.5

1.6

1.3

1.3

1.2

1.3

1.0

0.9

Non-Sugar Agriculture & fishing

3.7

3.6

3.5

3.6

3.3

3.4

3.1

3.1

3.2

3.5

3.4

3.2

Manufacturing

6.9

6.4

6.4

6.2

6.2

6.1

5.8

5.6

5.5

5.0

4.8

4.5

Tourism

16.1

15.5

15.0

15.8

13.5

12.3

13.8

11.8

11.8

11.9

12.3

12.2

Mining & Quarrying

1.1

1.0

1.0

0.9

0.9

1.0

0.9

0.8

0.8

0.5

0.5

0.5

Electricity, Gas & Water

3.5

3.8

3.9

3.9

3.9

3.8

3.9

3.9

3.9

4.1

4.1

4.1

Construction

7.5

8.2

8.8

8.7

8.8

9.6

9.1

8.9

8.4

7.2

6.5

7.0

Wholesale & Retail

19.4

19.3

19.4

19.8

20.7

21.0

21.2

22.2

22.0

21.8

22.3

22.2

13.8

13.9

14.7

13.9

14.4

14.4

14.0

14.2

14.6

15.6

15.8

16.1

Government
Transportation, Storage &
Communication
Business & Other Services
GDP - Market Prices (millions
BDS$)

8.4

8.7

8.4

8.5

8.8

8.8

8.8

9.2

9.5

9.6

9.6

9.6

17.0

17.3

16.8

17.2

17.9

18.0

18.1

18.9

19.2

19.5

19.6

19.7

6186.7

6183.2

6234.0

6484.8

6980.0

7837.3

8393.0

8966.2

8687.4

8793.3

8490.4

8625.8

Domestic Exports

379.2

352.7

333.1

329.2

346.9

422.1

497.1

522.3

531.2

458.6

522.8

568.5

Retained Imports

2146.7

1971.0

1991.7

2220.5

2616.3

2911.0

2866.9

2958.2

3396.0

2600.4

2802.9

3231.1

Trade Ratios - as % of GDP

Domestic Exports

6.1

5.7

5.3

5.1

5.0

5.4

5.9

5.8

6.1

5.2

6.2

6.6

Imports

34.7

31.9

31.9

34.2

37.5

37.1

34.2

33.0

39.1

29.6

33.0

37.5

Trade balance

-26.4

-24.1

-24.6

-27.0

-30.3

-29.4

-26.0

-26.1

-30.9

-22.4

-25.4

-26.4

Source: Central Bank of Barbados

Likewise,
the
manufacturing
sectors contribution to growth has also
fallen, moving from double digits as seen
in the 1980s (between 1980 and 1986 the
contribution to real GDP stood at an
annual average of 11.3%), to single digits,
which between 2000 and 2011 averaged
5.8%. Loss of market share due, among
other things, to increased operating cost,
market liberalization, and low investment,
could be seen as some of the constraints
facing the sector.
Alternatively, while the major
foreign earning traded sectors have been
facing some challenges, the non-traded

foreign exchange using sectors have been

driving economic output. The main sectors
have been the wholesale and retail sector
followed by business and other services. A
scatter plot of the data as captured in
Figures 4 and 5 clearly shows the high
relationship between these two sectors and
growth. With R-squares of over 90.0% the
power of wholesale and business services
to explain growth is highly important, as
compared with tourism. However, this
cannot all be taken in isolation, as other
factors needs to be considered when
examining the growth process. One such
factor or concern is the countrys
24

dependence on foreign exchange to

purchase imports that goes into production
and the fact that these non-traded sectors

are consumers, rather than earners, of such

foreign exchange.

25

Has Growth been Export Driven?

Given the above discussion, the
question that can be asked is whether
growth is export driven (goods and
services) or whether it is driven by
endogenous factors and consumer
demand. The issue of export-led growth
has been explored extensively in the
literature with early cross-sectional studies
done by Balassa (1978), Feder (1983) and
then basic time series studies done by Ram
(1987), Salvatore and Hatcher (1991), and
Sengupta (1995). However, with the
introduction of co-integration and error
correction modelling, the emphasis shifted
to testing for both short-run and long-run
effects and also for causality (See Van Den
Berg and Schmidt, 1994 and Ahmad and
Harnhirun, 1995).
For the purpose of this study
however, no elaborate econometric analysis
is done. The aim is simply to use basic
correlation testing to determine the
strength of the linear relationship between
growth and the exports of goods and
services. Given this approach, the
relationship between domestic exports
(goods) and growth was shown to be weak
with just an explanatory power of 15.0%
(R = 0.1512). On the other hand the
correlation between service exports (travel
credit) and growth was stronger with an
explanatory power of 83.0% (R = 0.8375).
These basic results support the fact that
services has been the driving economic
force and hence would have to be given
the greater focus.

Productivity Measures
An important gauge element for
economic growth is to measure the
efficiency of labour both at the macro-level
and at the micro-level. Based on work
done by the National Productivity Council,
measures of labour productivity are
captured in Figure 6 below. Represented in
the chart are national productivity growth
measures, sectoral productivity statistics for
key industries, and real GDP growth. It is
the expectation that decreases/increases in
national productivity growth would be
accompanied by similar patterns in
economic growth. From the pattern this
does not seem to be the case except for
2009 and 2010. Compared to the individual
sectors there also appears not to be any
real relationship with growth, except for
the accommodation (tourism related)
sector.
Again using basic correlation
analysis to test the linear relationship
between national productivity changes and
economic growth the relationship had an
explanatory power of 42.0% (R = 0.4201).
In the case of accommodation the
explanatory power was just 15.0% (R =
0.1466). For the other sectors, the
explanatory power was negligible. Given
the short time series (only seven years) it is
difficult to draw any strong conclusion
from these results, except to say that
productivity levels for most of the sectors
appears to have weaken during the period
2008 to 2010. Nonetheless, the fact that
tourism productivity was shown to have
more significance than the other sector
would strengthen the argument of its
importance.

26

Source: Barbados National Productivity Council

Way Forward

important. The strategy must be to see how

best resources can be used to obtained the
main objective that being growth. It may
also mean examining the experience of
other countries like Mauritius to determine
what lessons could be learnt.

It would therefore be a strong

argument that for the purpose of this
study, focus be given to just those foreign
exchange earning sectors since in the case
of tourism there are significant spin-offs to
the non-traded sectors. Hence, getting
tourism growing means growth also for
others. It is also important that if we are
going to look at how growth can be moved
beyond 3.0% or 5.0% consistently then we
need to look not only at the traditional
sectors but also new ones. Currently, the
focus on renewable energy and culture as
emerging growth creating sectors is

V.

Does Barbados have a Growth

Problem?

This is a complex and not so

straight forward question; however based
on the above discussion and analysis, the
following observations can be made:

27

1. Economic growth has been

somewhat volatile and low for
most periods with only a few years
when it stood 4.0% and over. The
volatility could be attributed to
external
shocks
and
high
dependence on just a few sectors.

and financing. While there may be lots

more reasons, which it would be
impossible to discuss in just one paper, the
aim will be to focus on the most relevant
and let those be the center of discussion.

2. The early 1980s and 1990s were the

major periods of negative and weak
growth due to both external and
internal factors.

The following discussion centers

on identifying the major constraints to
growth in Barbados. It is observed that
historically real GDP growth has primarily
been low with only a few accessions when
it surpassed 5.0%, but never able to
maintain this level due to external and
internal shocks. The low growth is
reflected in the stubbornly high
unemployment rate which has averaged
14.0% for the period 1980 to 2011, with
the highest rate being 24.3% (1993) and the
lowest being 7.4% (2007).
The approach will be that since
growth is primarily driven by investment, it
would be best to focus on those issues that
can constraint investment in traditional and
even non-traditional sectors, particularly
those sectors earning foreign exchange.
Possible issues to target would be
financial constraints (savings, interest rates,
private sector credit); government and
market failure (business facilitation and
cost, taxation, crime, innovation, research
and development); and complementary
factors (human capital, international
foreign reserves, infrastructural, the
environment). Also, in the case of small
open economies like Barbados matters
such as - market size; trade agreements;
and adverse external economic shocks
(increases in global oil and food prices,
economic and financial weakness, etc.), are
all issues that we have to grapple with but
which we have little control over. The
growth diagnostic tree shown in Figure 9
captures the basic HRV model and some

VI.

3. While manufacturing in the past

has made a significant contribution
to real GDP this has fallen with
tourism being the only traded
sector making a major contribution
(currently international business is
not captured as a sector in the
national accounts).
4.

Given the importance of foreign

reserves to growth it is a matter of
concern that the non-traded
foreign exchange using sectors,
(mainly wholesale and retail, and
business services) have been the
major components of real GDP.

5. While data was lacking the

observation was that the growth in
productivity seems not to have any
significant impact on economic
growth. This raises the question as
to whether the level of productivity
is high enough, which may not be
the case particularly between 2008
and 2010. Maybe this could
partially explain the low or
insignificant growth rates during
this period.
The argument could be expanded upon by
identifying other related issues such as
business facilitation, energy cost, taxation,

28

HRV Constraints Matrix

of the main distortions to growth. In the

case
of
Barbados,

this would have to be amended.

Figure 9: Growth Diagnostics Decision Tree

Problem: Low levels of private investment and entrepreneurship

Low return to economic

activity

Low social returns

Poor
Geography

High cost of finance

Low appropriability

Bad international
finance

Bad local
finance

Bad
infrastructure

Low
Human
Capital

Government
failure

Market
failure

Low Domestic
savings

Poor
intermediation

Information
externalities
Coordination
externalities
Micro risk:
Property rights,
corruption, taxes

Growth
Issues

Constrained

by

Macro risks:
financial, monetary,
fiscal instability

Financial

by this. In fact, the gross national savings

ratio which stood at 10.6 in 1991 fell to 6.3
at the end of 2011. A correlation of 30.0%
(R-square = 0.3007) which represents a low
association between national savings and
real GDP suggests that other savings are
responsible for domestic investment and
growth. This is supported in Figure 10
where investment (% GDP) has been
higher than the savings ratio from 1997,
and also higher than the public savings

There is a role for financial and private

savings in the growth process when linked
to investment in physical capital. Looking
firstly at national savings6 for Barbados, it
does not appear that growth, particularly
between 1991 and 2011, has been driven
6

This is defined as the gross capital formation in

the national accounts plus the balance in the
current account of the BOP (IMF approach).

29

ratio7 which in most years has been in

deficit.
On the other hand private savings8
are shown to be significant with a high
explanatory power of 90.0% with real
GDP (See Figure 12). Significant also is
foreign direct investment (external savings)
which expanded significantly after 2004
and which has helped to explain 72.0% of
real GDP (Figure 11). It appears from this
information that national savings has not
been a significant driver of investment and
growth, but there has been a heavy reliance
on private savings, both local and external.
The reliance on external savings has
materialized in the form of easy access to
credit owing to good credit ratings over the
years. However, in more recent times,
these ratings have fallen due to growing
debt levels and weaker than expected
economic performance as the main
economic
drivers,
tourism
and
international business, remains highly
exposed to the current global economic
challenges. These challenges have resulted
in reduced investment flows, particularly in
tourism/construction related activities.
These actions clearly highlight the high
exposure of the country to these shocks.
In terms of the banking system and
lending rates, the recent Financial Stability
Report (FSR) 2011, published by the
Central Bank of Barbados, posits that the
banking and financial system of Barbados
remains robust. Outside the current
challenges posed by the weak global
economic environment, the banking
system has over time been shown to be
stable and less exposed to external risk, due
mainly to good management and
supervision by the Central Bank of
Barbados. The banking community, which
is small and oligopolistic in nature, is

dominated mainly by foreign own banks

that are highly capitalized and liquid, as
shown by a liquidity asset ratio of 18.9% at
the end of 2011. Commercial banks
provide 70.0% of all loan and holds assets
equivalent to 130.0% of GDP (FSR, 2011).
In terms of the distribution of
credit for productive or growth related
activities, the focus has more been towards
services, mainly professional and other
services, and tourism. In addition, personal
credit as shown in Figure 13 has seen
significant growth due to increased
demand
for
consumer
goods.
Disappointingly, loans to the potential
foreign earning exports sectors like
manufacturing and agriculture has been
declining, which mirrors the small
contribution these make to real GDP. This
then raises the question of whether
commercial bank lending maybe biased
towards services and personal credit at the
expense of the more traditional traded
sectors.
The answer to this may lie in the
risk perceived by the lender, which can
influence lending behavior. In a paper by
Craigwell and Kaidou-Jefferey (2010) the
point was made that access to credit can be
restricted to small businesses because of
the lack of adequate resources such as
collateral, while similarly, the agricultural
and manufacturing sectors may be
constrained by lack of resources and the
high risk inherent in them. They also noted
that banks exercise caution in their lending
behavior and are risk averse in an
environment of uncertainty. Naturally this
risk maybe reflected in the level of interest
charged on loans, with larger loans
attracting higher interest. While this is
assumed, a paper by Moore and Craigwell
(2000) showed that in the Barbados case
smaller loans attracted higher interest and
vice versa. This may explain the low credit
to small and medium size enterprises, many
of whom are operating in the agriculture
and manufacturing sectors.

This is defined as tax revenues less current

expenditure.
8
This is made up of savings from financial
institutions, business firms, and private
individuals.

30

Given that interest rates are

important for growth, then higher spreads
could be inimical to growth, as it can
discourage large, medium and small scale
private investments. As shown in Table 14,
interest rate spreads for Barbados has been
relatively stable. Also, the average spread
(1980 to 2010) has been 5.4% compared to
countries like Jamaica (10.3%), Mauritius
(7.2%), and St. Lucia (6.8%). While this
seems to confirm the stability of the
banking system, the issue of low credit to
traditional productive sectors, possibly due

to risk concerns, and the oligopolistic

nature of the banking system, may pose
some constraints to higher levels of
growth. To counteract this, current and
past governments have started to create
financial structures to assist small and
medium sized businesses given its
importance to growth. However, such
funding, including that of credit unions
only accounts for a small percentage when
compared to available funds of commercial
banks.

31

Source: Central Bank of Barbados

Source: World Bank Development Indicators

Growth Constrained by Government or

Market Failure

in four areas namely construction permits

and registering property, while declines
were seen in six areas, the main ones being
starting a business, getting credit, and
enforcing contracts. Another report of
importance is the Global Competitiveness
Report 2012-2013, where Barbados is
ranked at 44 out of 144 countries. This
ranking places it as the top Caribbean
country followed by Trinidad and Tobago
at 84. This report which is very much
linked to the World Bank doing business

The Doing Business Indicators

(World Bank, 2013), which ranks the ease
of doing business in a country from 1 to
185, showed that Barbados moved from a
ranking of 84 to 88, a four point drop.
This result is compared to a ranking of 90
for Jamaica and 69 and 53 for Trinidad and
Tobago and St. Lucia respectively. As the
report showed, there were improvements
32

publication also identifies access to

financing as a problematic factor for doing
business. Interestingly also it highlights

inefficient government bureaucracy and

insufficient capacity to innovate as high up
the order in terms of constraints.

The results above highlight the

concerns, particularly at a sectoral level, of
the challenges which we have to overcome
in order to improve our level of
competitiveness and have higher and more
sustainable growth. For example, in
tourism there are known challenges that
have to be tackled, particularly those
related to the narrow market base, high
input cost (particularly energy), limited air
lift, and an aging tourism product. In the
area of construction, some of the key
constraints are identified as limited
geography, high input cost, and the
availability of financing, while in the
International Business sector, issues of
limited product offerings, business
environment and competition, and fiscal
incentives, have all been highlighted as
issues to be addressed.
Further, in the industrial sector we
also have to address issues of inadequate
finance, low level of innovation, high cost,
lack of market research, limited access to

supply chains, and mature industry. These

spills over into the small and medium sized
enterprises were also the lack of funding,
high operating cost, a high risk adverse
culture, lack of mentorship, and too much
focus on the domestic market, are also just
some of the concerns.
Another important factor which
identifies failure of government has to do
with the management of its finances and
whether such management has become a
burden on consumers and producers alike.
Interestingly, the global competitiveness
report 2012-2013 identifies tax rates as
being high on the list of problematic
factors for doing business. It is not totally
clear the areas of taxation which is most
problematic but with the lowering of both
income and corporate taxes, this has
allowed consumers and businesses to keep
more of their earnings. On the other hand,
indirect taxation has increased as VAT, the
main tax on goods and services rose from
15.0% to 17.5%. This would no doubt
33

increase prices which could negatively

impact growth.
The uncertainty or macroeconomic
instability that can arise due to high prices
is a concern that government cannot
ignore. Fortunately for Barbados, the risk
of continued high levels of inflation has
not been part of the macroeconomic
landscape. Indeed, when we look at the
history of prices it has been driven mainly
by external factors, particularly given food
and oil shocks, which are not always
persistent. Hence, with exception of the
late 1970s and early 1080s, the level of
inflation for most parts has remained
below 10.0%. This observation is
supported by the weak negative linear
relationship between real growth and
inflation, which only has an explanatory
power of 2.6% (R=0.0263). This shows
that inflation does not dominate the
dynamics of growth within the analysis9.

Growth Constrained by a Lack of

Complementary Factors
Given its small size Barbados has a
dense network of roads which makes
accessibility to the entire island possible. In
2010, an assessment released by the
Economist Intelligence Unit (EIU) of the
United Kingdom, ranked Barbados 6th in
the world, and the top spot in the Western
Hemisphere for road network density. On
top of this, it can be argued that the
maintenance of a well managed sea port
and airport has aided trade and the
movement of goods and services.
However, the dense road network has had
its challenges in terms of road congestion
and vehicular accidents. This has
implications for productivity since time is
wasted stuck in traffic. That said, other
factors such as telecommunications and IT
services are growing but still need to be
expanded. The market has been liberalized
and the emergence of new players will help
to cut cost and improve the
competitiveness of businesses.
In addition to communication and
IT costs, another important input for
private consumers and businesses is
energy. Currently, the main energy source
is oil, which in recent times has seen price
volatility due to growing demand and other
shocks beyond Barbados control. The
increased energy prices have had a negative
impact on businesses, which now has to
face higher input costs. The same goes also
for consumers who, having to face higher
energy bills, now have less disposable
income. With an oil import bill at $787.0
million in 2012 or 9.1% of GDP, the
search for alternate renewable sources has
been the drive of government. The aim is
to reduce fossil fuel use by 30.0%. The
results would be a reduction in energy cost
and increase competitiveness.
An important endogenous growth
indicator is the building of human capital
via education and health care. Primary,

Growth Constraint by Low Social

Returns Crime and Corruption
A major constraint to growth can
be a breakdown in social cohesion and
corruption which can translate to human
suffering and failure in the delivery of vital
social services. Fortunately for Barbados
this has not been a major issue. While
crime does exist the perception of
corruption is quite low as judged by
Transparency International which ranks
Barbados at 15 with a score of 76. This is
compared to a ranking of 24 in 2005 which
clearly shows the level of improvement
overtime in our listing in the corruption
perception index. Referring to the global
competitiveness report 2012-2013, the
issue of crime and corruption is listed low
down as one of the factors impacting
negatively on doing business in Barbados.
9

Note that data from 1980 to 2011 was used.

However, the results could be different if data
for higher inflation years was used.

34

secondary and tertiary education is virtually

free, which has been the policy of

successive governments.

This however, has placed a heavy burden

on governments finances, especially as it
relates to spending at the tertiary level.
Going forward, innovative remedies will be
needed and cost savings found. In addition,
there needs to be greater focus on
providing education and training for the
anticipated new growth area, which serves
to empower the workforce and make it
more competitive in a global market.
Regarding health, the main challenge
relates to non-communicable diseases
which have risen due to lifestyle changes.
The impact has been on the most
productive segment of the workforce in
the form of increased absenteeism and loss
of workers. If left unchecked, the upsurge
can have a serious impact on our ability to
produce and to be productive and grow.
The final issue that could be raised
is one of the foreign reserves, which is the
life blood of small open economies. There
is the understanding that developing
countries must maintain adequate reserves
in order to support financial stability, the
question of the importance of such a
stance to economic growth is essential. In
the case of Barbados, which depends
significantly on imports of consumer

goods, intermediate and capital goods, a

strong link between reserves and growth is
expected since many of these imports go
towards building productive capacity. This
is more clearly understood when we
consider that unlike developed economies
which can stimulate domestic demand and
drive growth, countries like Barbados are
limited in this regard by the lack of
adequate reserves and hence is highly
dependent on external factors to determine
growth. Also, like other small open
economies we have to purchase capital and
intermediate goods since our limited
capacity
and
low
technologically
capabilities does not allow us to be fully
creative.
VII.

Conclusion

Barbados is a country highly

dependent on the export of services and
investments. Tourism, the main services
sector, which is a significant contributor to
growth, is highly impacted by external
shocks that can result in increased
volatility. On top of this, the Barbados
economy remains narrow with limited
export potential and hence in need of re35

structuring with a focus on broadening

export-driven growth. Much of the
constraints lie in the areas of business
facilitation, high labour and production
cost, and implementation of policies and
programmes for various reasons. As a
result, growth has traditionally been low,
while the level of productivity and
competitiveness
has
been
limited.

Notwithstanding these issues, Barbados

high level of political and economic
stability and high education and health
services makes it an attractive destination
for investment and hence all effort should
be taken to build on these attributes.

36

LINKING EDUCATION TO THE CHANGING NEEDS OF THE LABOUR

MARKETS
SKILLS NEEDS 2012: BUILDING A STRONGER WORKFORCE THROUGH
INFORMATION

The Research Unit

Ministry of Labour and Social Security

37

III. LINKING EDUCATION TO THE

CHANGING NEEDS OF THE
LABOUR MARKETS

SKILLS NEEDS 2012: BUILDING

A STRONGER WORKFORCE
THROUGH INFORMATION
By

The Research Unit

Ministry of Labour and Social Security
INTRODUCTION
Since gaining independence in
1966, Barbados as a small open economy
has been able to record many significant
accomplishments in spite of having few
natural resources. With a per capita GDP
of some Bds $27 800 in 2011, coupled with
favourable rankings on the United Nations
Human Development Index and the
Global Competitiveness Index, it can be
argued that Barbados has performed
creditably in the management and
governance of its affairs over the past
couple of decades.
One of the key contributing factors
that are often highlighted for the
attainment of the countrys success has
been the creative policies and programmes
that Barbados has pursued to both develop
its education system and ensure that to the
greatest extent possible, all of its citizens
have had access to this crucial service.
Key characteristics and highlights
of Barbados education system include:
Free education
at the primary,
secondary and tertiary levels;
Compulsory education for all citizens
up to sixteen years of age;
The attainment of a literacy rate of
99.0%10;
The incorporation of information and
communications technology into the
learning process under initiatives such
10

as
the
Educational
Sector
Enhancement
Programme
(EDUTECH);
The
development
of
training
institutions such as the Samuel
Jackman Prescod Polytechnic to
facilitate the delivery of vocational
subjects; and
The provision of learning facilities to
cater to the needs of children with
physical and cognitive challenges, as
well as at-risk children

In
addition
to
these
accomplishments, several activities are
ongoing to enhance and diversify the
offerings of the education system, ranging
from the advancement of National and
Caribbean Vocational Qualifications, to the
formation of smart-partnerships with
international institutions such as the InterAmerican Development Bank (IADB).
Partnerships such as these, aim to
institutionally strengthen those agencies
that have the responsibility of providing
education services to the country.
In acknowledging the various
achievements that have been made, there
still remain several obstacles to the further
development of the countrys education
system. For instance, it is often reported
that some sixty percent of students leave
school without any formal system of
certification. Moreover, the capacity of the
tertiary
institutions
to
adequately
accommodate all students that are desirous
of pursuing studies at that level is also a
cause for concern. However, arguably one
of the most critical challenges confronting
Barbados education system has been the
chronic disconnect that continues to exist
between the course offerings of Barbados
major training institutions and the needs of
employers operating in the real-world work
environment. It is with this concern in
mind that this paper has been prepared,
along with recommendations as to how the
disconnect can be successfully addressed.

National Strategic Plan of Barbados 2006-2025.

38

THE PROBLEM OF INFORMATION

ASYMMETRY
In developed and developing
countries alike, policy and decision makers
are increasingly recognising that there is a
close link that must be established between
education and workforce development. In
an ideal environment, there would be
constant and continuous communication
between employers on the one hand and
training institutions on the other. Such an
arrangement would inevitably redound to
the benefit of both parties. Employers,
based on their business experience and
their analysis of environmental trends,
would be ideally positioned to advise
training institutions as to the skills sets they
require to facilitate the growth and
development of their organisation.
Training institutions in turn would be
assisted in the restructuring of their
curricula to produce quality offerings that
are (i) relevant to the business world (ii) are
in sync with changes in technology and
that (iii) ultimately enhance the ability of
the graduate to enter seamlessly into a
modern work environment.
Such arrangements are not new and
can already be found in developed
countries such as Canada, Australia and
New Zealand. Arrangements such as these
are fast proving to be vital action steps that
must be taken in any countrys endeavor to
develop its human resource, especially if
human resource needs can be organised
and reviewed on a sectoral basis. With
possession of this crucial type of labour
market information, policy and decision
makers would be provided with an
overview as to the skills sets that employers
in the countrys primary economic sectors
are demanding. They would then be
empowered to devise and implement
proactive training policies which are based
on factual and objective research, provided
by the countrys primary sectors.
In Barbados however, the current
reality is that formal collaborations

between
employers
and
training
institutions are often infrequent, sporadic
and uncoordinated. Consequently, if there
is general consensus that the human
resource is critical to Barbados emerging as
a developed nation by 2025, innovative
means must be found to ensure that smartpartnerships between these parties are
formed and that information on desired
skills are communicated to Government
and training institutions in reasonable
timeframes.
The education system must be
mindful of such developments, for if
education is to be truly placed at the
forefront of socio-economic development
in Barbados, it must implement those
policies and programmes which are
necessary to make it dynamic and
responsive to the needs of its people,
particularly businesses that generate and
drive commercial activity.
THE IMPORTANCE OF SKILLS NEEDS
INFORMATION AND ITS RELATION TO
THE EDUCATION SYSTEM
In addition to training institutions,
skills needs information is vital for other
categories of information users. In recent
years, information on the skills and training
needs of employers in industry have
emerged to become arguably the most
sought-after category of labour market
information required by the general public.
Traditionally, the primary types of labour
market information required by public
users pertained to statistics such as the
unemployment rate, employed persons
working in Barbados major economic
sectors and employed persons dissected
into major occupational groupings such as
Managers, Professionals and Skilled
Craftsmen. Within recent years however,
there has been a distinct demand for the
provision of diverse types of information,
ranging from employment projections by
occupation, to information on job losses
and gains by economic sector.
39

To be proactive and to continue to

adequately respond to the needs of the
public, Government, through the Ministry
of Labour and Social Security, embarked
on exercises to collect, analyse and
disseminate requested information and
make it easily accessible to members of the
public. Due to its critical importance, it was
determined that skills needs information
should be collected on a continuous basis.
It was further acknowledged that such
information could have significant benefits
to a variety of stakeholders in the
education system. Guidance Counsellors
and students in particular would be
provided with sectoral information as to
areas in which skills shortages exist, the
occupational needs of employers in key
industries, the types of qualifications that
employers were demanding and which
training institutions offered programmes in
the areas in which they were interested.

These sectors were chosen from

goal five of the National Strategic Plan
2006-2025. They were considered to be the
drivers of the Barbados economy over
the next 20 years and were regarded to be
critical in helping the country attain
international competitiveness.
The stakeholders were arranged in
focus group sessions and their responses
were solicited to questions like:

PAST SKILLS NEEDS EXERCISES

CONDUCTED BY THE MINISTRY OF
LABOUR
Being mindful of the increasing
need to collect, analyse and disseminate
information on skills needs to the public,
the research section of the Ministry
endeavoured to capture this type of
information. In 2007, the MRSU met with
key stakeholders in five selected sectors
that were deemed to be critical to the
future economic development of Barbados.
These stakeholders were primarily
representatives of umbrella associations,
relevant government ministries and
employers. The sectors targeted at the time
were (i) Finance and International Business
(ii) Manufacturing (iii) Tourism (iv)
Agriculture and (v) the Cultural Industries.
These sectors were determined to be
critical to the Barbados economy in terms
of their contribution to gross domestic
product,
employment
and
foreign
exchange.

This exercise was repeated in 2009 and on

a limited basis in 2010.

(i)

labour-related challenges being

faced by employers in their
respective sectors;
(ii) current skills shortages impacting
on the smooth functioning of
the sector;
(iii) corresponding
training
and
certification requirements for
occupations in demand; and
(iv) occupations for which skills sets
were usually sourced overseas

SKILLS-NEEDS 2012 - AN OVERVIEW

OF THE EXERCISE CONDUCTED BY THE
MINISTRY OF LABOUR AND SOCIAL
SECURITY
In March 2012, the research section
of the Ministry of Labour and Social
Security, in collaboration with the TVET
Council, devised a project proposal for the
conduct an expansive and comprehensive
skills
needs
assessments
exercise.
Preparatory meetings were held with
representatives of chosen sectors to:

40

Sensitise participants as to the

importance
of
skills
needs
information;
Identify key industry stakeholders to
participate in the exercise; and
Review and finalise the list of
questions that would be used in the
project.

The Ministry attempted to capture

information on the skills sets and training
requirements for eight sectors, inclusive of:
1.
2.
3.
4.
5.
6.
7.
8.

Ministry sought to capture specific sets of

information that were not captured in
previous exercises, but were deemed to be
critical to users of labour market
information. These included, inter alia:

Tourism,
Agriculture,
Manufacturing,
Business and Financial Services,
Wholesale and Retail Trade,
Construction,
Public Sector,
Cultural Industries

1. The ranking of every occupation

identified by stakeholders as being
in demand under a three-level
system. Under this system, each
session was requested to classify
occupations by their level of
importance. The proposed rankings
assigned to demanded occupations
were:
(rank #1: modest demand)
(rank
#2:
significant
demand)
(rank #3: critical demand)

Through a review of documents

such as the Medium Term Development
Strategy 2011-2014, various editions of the
Financial Statement and Budgetary
Proposals and the Barbados Economic
and Social Report, it was determined that
each of these eight sectors had critical roles
in the future development of the Barbados
economy. The first four sectors listed were
considered to be vital to the earning of
foreign exchange for Barbados and
consequently were chosen based on this
key factor. The next three sectors were
considered for study, primarily due to the
fact that they each employed significant
numbers of workers. This fact was
evidenced by a review of the continuous
household sample survey11, where it was
discovered that each sector employed over
ten thousand workers, out of a total
employed labour force of just under
130,000 persons. Cultural Industries was
chosen on the fact that it was widely
considered to be the sector with
tremendous opportunities for future
development.
Upon the choosing of the eight
sectors, the Ministry again sought to
identify a satisfactory combination of
employers, government ministries and
umbrella agencies and scheduled a series of
focus groups. At these focus groups, the

2. For each occupation, stakeholders

were requested to outline the
corresponding qualification, as well
as the ideal level of certification
(e.g. Diploma, Bachelors, Masters,
Professional certification, etc) they
required of the occupation in
demand;
3. Sources that were determined to be
of importance, but who werent
invited to the focus group sessions,
would be requested to make
contributions to the exercise
through follow-up interviews.
Those identified stakeholders were
supplied
with
the
same
questionnaire as the persons in the
focus groups. This action was
pursued given the fact that some
sectors such as Culture, Agriculture
and Manufacturing could be
dissected into numerous subsectors which were capable of
being analysed as separate units by
themselves.

11

The survey conducted by the Barbados

Statistical Service to capture and report on the
labour force

41

METHOD OF DATA COLLECTION:

EMPLOYER SURVEYS VERSUS FOCUS
GROUP SESSIONS
In the initial planning stages of
Skills Needs 2012, the Ministry was
confronted with the need to choose a
systematic, transparent research method of
collecting the required skills needs
information. The two methods which were
considered in detail were (i) the conduct of
employer surveys and (ii) the conduct of
focus group sessions.
After reviewing each method, it
was acknowledged that each approach had
advantages and disadvantages.
In
reviewing the use of employer surveys for
each sector, it was noted that this method
would allow for a significantly greater
amount of respondents to be targeted. This
would result in the inclusion of a wider
cross-section
of
employers
and
consequently the acquiring of more
opinions from employers as to their future
needs for workers. Another critical
advantage would be that the use of a
survey would facilitate the use of a sample
that was representative of employers in a
particular sector. A representative sample
in turn, would allow for the use of
statistical inferences, thereby facilitating the
use quantitative analysis on the data which
was collected from employers. The main
disadvantage associated with this method
was the significant outlay of resources that
would be needed to conduct a proper
analysis and draw representative samples of
each of the sectors. The formulation of
accurate sample frames for some of the
sectors (particularly the Cultural Industries)
was also taken into consideration. With
respect to the first disadvantage, the factor
expense was underscored when the
following activities were considered:

formulating
a
comprehensive
public relations campaign to
adequately inform and sensitise
employers as to the conduct of the
survey;
payment of Field Investigators for
their travel to and from survey
participants;
associated survey expenses such as
printing of survey instruments and
printing costs; and
managing and monitoring the
activities of Field Investigators

The other critical disadvantage was

the culture associated with the provision of
information for the conduct of surveys.
Survey response rates in Barbados are
often quite low and in making the decision
to choose this method, the Ministry faced
the distinct possibility of spending
significant amounts of funds for which the
possibility of a very low response rate was
highly probable.
After considering the advantages
and disadvantages associated with the use
of surveys, the option of conducting focus
groups was then scrutinised. The primary
advantage associated with the organisation
of focus groups was that they were
relatively inexpensive to conduct. In
addition, the information which was
required by the research section could be
collected in a very short space of time. The
third and very critical point was the fact
that historically, the research section has in
the past experienced reasonable-tosatisfactory responses from participants in
such exercises.
The disadvantage of the focus
group method was that virtually all of the
information collected would be of a
qualitative nature and would not readily
facilitate the conduct of any meaningful
statistical tests. Furthermore, the greater
the amount of participants, the greater the
challenge faced by the group facilitator in
managing the discussions to obtain the

the hiring and remuneration of

field investigators required to
conduct the research;

42

required information. This challenge would

also be compounded by the fact that focus
group sessions should ideally be conducted
within a specific period of time.
After carefully considering both
options, the recommendation was made to
tackle the issue of collecting skills needs
information using a combined approach.
The research section was of the view that
focus groups could be used over the short
term to capture primarily qualitative
information on the skills needs of
employers. The instrument used to guide
the discussions at the focus group sessions
is shown as Appendix I. Over the medium
term however, funds would be sourced
from international agencies such as the
Inter-American
Development
Bank
(IADB), to conduct a survey which would
be more representative of employers in
given sectors and from which richer and
more detailed information on the needs of
employers could be gleaned.

sub-sectors. The Cultural Industries sector

was determined to be easily the most
complex sector to study. In addition to
having a large number of sub-sectors, the
sub-sectors themselves could also be
further dissected. As a practical example of
this dilemma, in discussing possible
approaches to the identification of
participants for this sector, it was noted
that music, as a distinct sub-sector on its
own, could be further divided into five
distinct sub-sub sectors.
Probably one of the more worrying
observations made on the exercise was the
fact that many participants, some of whom
could be considered to be key stakeholders
in their respective sectors, were openly
unable
to
provide
comprehensive
information as to the skills and training
needs required of persons in their own
sectors. Many participants were unable to
speak with authority as to the trends and
future developments which were impacting
and would impact on their respective
sectors. Many stakeholders did not know
what qualifications were required of skilled
persons seeking to enter their sector.
Finally, and of particular concern, was the
fact that many stakeholders did not know
what skill-sets were required to develop
their sector.

CHALLENGES ENCOUNTERED IN THE

CONDUCT OF SKILLS NEEDS 2012
As has been the experience with
some past skills needs exercises,
participation by selected stakeholders could
be described as fair. Invitees to the focus
group sessions were initially contacted via
telephone and/or e-mail and then written
formally. Some invitees, when contacted
prior to the meetings pledged to attend.
However, on the day of the sessions, they
were absent from the proceedings. Overall,
whilst attendance at many of the focus
group sessions could be deemed to be
satisfactory, participation at a few of the
sessions was inadequate.
The sheer diversity and complexity
of some sectors also proved to be an
obstacle to the Ministry. As a case in point,
it was noted that the Manufacturing sector
could itself be dissected into at least fifteen
separate
and
distinct
sub-sectors.
Agriculture could reasonably be divided
into approximately the same number of

PRELIMINARY RESULTS OF SKILLS

NEEDS 2012
The interim tables shown below are
provided for three sectors which have been
selected from the exercise. The
information provided in the tables have
been obtained and compiled from the
focus group sessions and are provided for
the Tourism, Construction and Public
Sectors. They display the following:

43

skills sets required;

desired level of certification; and
priority ranking of the skills set

Table 1: Selected Information obtained from the Tourism Focus Group

TOURISM
Skill-Set Required
Level of Certification Desired
Quality Assurance
Customer Service
Food and Beverage Management
Wine and Spirits
Language Skills
Heritage Management
Project Management
Website Development and Might
Financial Management
Tour Guides

Special designation e.g. (H.A.C.C.P)

Various short courses
Certificate to Degree level
Conversational courses to Associate Degree
Certificate - Post Graduate
Specialised courses
Degree level to Professional Designation

Priority Ranking
3
3
3
3
3
3
3
3
2
3

Table 2: Selected Information obtained from the Construction Focus Group

Skill-Set Required
Urban Design
Building Conservation/Preservation
Building Surveying
Joinery/Ornate/Woodworking
Steel Benders/Fixers/Layers
Technicians (Chill Cooling Syst, Air
Cond)
Maint. Technicians (Solar Pan, Wind
Energy)
Fire Engineering
Geographical Information Systems
Scaffolders
Artisans (Painters, Masons,
Carpenters)
Artisans (Plumbers, Tilers, Roofers)
Specialised Welders
Safety Officers
Water Resource Engineers

CONSTRUCTION
Level of Certification Desired
Bask, Masc.
Assoc. Degree, B. Sc, M.Sc
Certificate
Certificate
Diploma to Degree level
Diploma to Degree level
B.Sc
Certificate, B.Sc, M. Sc
Certificate
Certificate, Carib Voc. Qualifications
(C.V.Q)
Certificate, Carib Voc. Qualifications
(C.V.Q)
Certificate, Special License
Certificate/Diploma/B. Sc/M. Sc
B.Sc, M. Sc

44

Priority Ranking
2
2
2
3
3
2
1 to 2
2
1
3
2
2
1 to 2
3
2

Table 3: Selected Information obtained from the Public Sector Focus Group
PUBLIC SECTOR
Skill-Set Required
Level of Certification Desired
Nursing
Degree level
Clinical Psychiatry & Psychology
Post Graduate Qualification
Procurement Management
Certificate to Post Graduate Qualification
Project Management
Diploma to Post Graduate Qualification
Foreign Languages
Conversational
Research Skills
Systems Analysts
B.Sc coupled with relevant short courses
Programming
B.Sc coupled with relevant short courses
Software Development
B.Sc coupled with relevant short courses
Records Management
Certificate
Legislative Drafting
L.L.M, Post Graduate Certificate
Curriculum Development
Specialists
B.Sc, Post Graduate degree
Competency Based Training
Negotiating Skills
Certificate
Industrial Relations
Certificate to Masters level
Supervisory Management
Certificate

Priority Ranking
3
3
2 to 3
2
3
3
2
2
2
3
3
3
2
2
2
3

Information Services would be consulted

to explore all available avenues to
disseminate the results of the exercise to
the public. The Ministry will also devise a
skills needs segment on the Ministrys
website and will ensure that it is wellpositioned on the home page for easy
access by website users. This information
will be provided free of cost to all
information users.
Finally, the Ministry would also
wish to actively explore the possibility of
conducting a series of presentations on the
findings of the exercise. The Ministry
would wish to make these presentations to:

FUTURE INTENTIONS OF THE MINISTRY

OF LABOUR AND SOCIAL SECURITY
The Ministry is desirous that the
results of this exercise, when fully
completed and analysed, be disseminated
to various categories of labour market
information users, most notably job
seekers, students, career planners, tertiary
institutions, researchers, other government
entities, employers and policy makers. The
Ministry is of the view that the information
collected is vital to the filling of
information gaps that currently exist on
occupational
and
training
needs
throughout Barbados. The Ministry is
especially interested in ensuring that
information users are provided with a
clearer understanding as to what skills sets
employers in particular sectors want and
what qualifications must be obtained in
order to gain employment in occupations
that certain industries are demanding.
At present, in order to improve
upon the quality of data which has been
captured under the project, the Ministry
forwarded the instrument to additional
stakeholders in most of the sectors. Once
the information collection component of
the exercise is completed, the Government

(i)
(ii)
(iii)
(iv)
(v)
(vi)

45

the Social Partners;

the
Guidance
Counselors
Association of Barbados;
the Barbados Youth Development
Council and other youth groups;
the Ministry of Social Care,
Constituency Empowerment and
Community Development;
the Ministry of Family, Youth
Affairs, Culture and Sports;
the Ministry of Education and
Human Resource Development;

(vii)

(viii)

tertiary institutions such as the

Barbados Community College; the
Samuel
Jackman
Prescod
Polytechnic; Barbados Institute of
Management and Productivity; the
University of the West Indies and
the Barbados Vocational Training
Board; and
the Barbados Accreditation Council

As the occupational and skills

requirements of the eight targeted sectors
are dynamic, the Ministry will seek to
create a comprehensive database of
stakeholders, in order that they can be
contacted and requested to update
information over time intervals of two to
three years.

RECOMMENDATIONS TO STRENGTHEN
AND SOLIDIFY THE INFORMATION
COLLECTED UNDER SKILL NEEDS 2012
In light of the scope and direction
of the project, the Ministry is of the view
that there are a number of complementary
actions that must be pursued if the
projects objective is to be truly realised.
These actions are now outlined below:

Further collaborating with the

Immigration Department to collect
information on the number of work
permits issued by occupation per
annum, as this could be regarded as a
possible indicator of skills shortages
that the Barbados labour market is
challenged to meet;
Research
and
formulate
a
methodology
for
conducting
quantitative employment projections;
The conduct of detailed employer
surveys in collaboration with the
Inter-American Development Bank
under the Skills for the Future
project which is expected to
commence in 2013-2014; and
Re-commencement of the Labour
Market
Information
Advisory
Committee (LMIAC) to obtain
tripartite input on pertinent labour
market issues that need to be
researched and analysed

CONCLUSION
In a dynamic and extremely
competitive labour market, the adverse
consequences that could be realised from a
countrys failure to conduct structured
skills needs assessments can be primarily
seen though the presence of wasteful
labour market imbalances and skills gaps
that can arise due to the lack of timely
information.
One such practical example would
be the case of students of tertiary
institutions, who invest their time, effort,
energy and financial resources into
pursuing a training programme for which
there is no demand. This unfortunate
scenario leads to unemployment, underemployment, or the student being
compelled to accept a job that in no way
makes use of their acquired skills and
competencies.
Government itself also reaps
adverse consequences, in that scarce
financial resources, especially in a time of a

Scrutiny of all courses and

programmes offered by major tertiary
training institutions at least every two
years by a committee of employers
with knowledge and experience in the
subject matter;
The conduct of two additional focus
groups in 2013 that target the
Alternative Energy and Sports
sectors, bringing to ten the number
of sectors that have been analysed;
Sensitisation of the general public as
to the need for labour market
information, along with its ability to
facilitate enhanced decision making;
Re-commence the collection of
information on monthly jobs created
and lost (by occupation) from the
National Insurance Department;
46

serious global downturn, are allocated to

the offering of training programmes in
which employers have no interest. Skills
Needs assessments are practical responses
that can be used to tackle these problems.
However, no individual category of
information user can successfully conduct
such initiatives in a vacuum. Success will
ultimately call for a collaborative approach
between employer, government and
training institution, where, through the
exchange of information, each partner
contributes to the national interest which
in this case, is the meaningful development
of the countrys human resource. Skills
needs assessments must be structured and
continuous and their results must be easily
accessible to all information users. Once
established and accepted by all labour
market participants, the nation as a whole
will be in possession of a tool that will

assist in the reduction of several of the

imbalances that have for years, hindered
the ability of the labour market to achieve
its maximum potential.
REFERENCES
The

Barbados
Human
Resource
Development Strategy 2011 2016.
Medium Term Development Strategy
2010-2014.
The National Strategic Plan of Barbados
2006-2025.
International Perspectives on Labour
Market Intelligence (International
Network
of
Sector
Skills
Organisations).
Barbados Economic and Social Report
(various editions).
Financial Statement and Budgetary
Proposals (various editions).

47

TOURISM FINANCING IN BARBADOS

Mr. Antonio Alleyne

Economist
Economic Affairs Division

48

IV. TOURISM FINANCING IN

BARBADOS

connection between the financial need and

the available options of the business
operators within the tourism12 industry.
For the appropriate policy measure to be
developed a comprehensive (empirical)
analysis of the prevailing situation at
ground zero is therefore paramount. This
preliminary analysis attempts to provide an
initial, yet broad descriptive perspective on
which more comprehensive studies can be
built.
What is now the countrys largest
income earner; tourism has become one of
the most significant economic generators
in the Barbadian economy. The importance
of the sector is reflected in the
fundamental role it plays in the
employment, development and capital
components of the countrys economy.
Regarded
as
perhaps
the
most
interconnected of services sectors in any
economy, with both backward and forward
linkages, this amalgam of parts embraces
various activities both in the services and
production sectors generally requires high
doses of capital investment with long
gestation periods (Chand 2000). These
include transportation, accommodation,
food and beverage services, travel services
(containing travel agencies and tour
operators),
and
recreation
and
entertainment. The tourism industry is
multi-sectoral (ESCAP 2001). According to
the Ministry of Finance and Economic
Affairs, Research and Planning Unit (2012),
despite a slight decline of approximately
0.2%, the tourism sector remained the
countrys largest traded sector with a
contribution of 12.3% of real gross

By
Antonio Alleyne
ABSTRACT
The importance of the tourism
industry is reflected in the fundamental
role it plays in the employment,
development and capital components of
the countrys economic performance. As
such, finance plays a life sustaining role in
the industrys development. It acts as a
lubricant in the process of economic
growth and is an essential element for
everyday activity. Thus, adequate supply of
financing increases the overall growth and
development (Chand 2000) of an economy,
indirectly.
A snapshot review of the financing
flows of the tourism industry reveals that
Barbados continues to establish financing
and guarantee facilities options to aid in the
development of tourism. However,
disequilibrium between the demand and
supply of these facilities remains. This
broad analysis raises a number of
unanswered questions pertinent to decision
makers. For the appropriate policy measure
to be developed a comprehensive
(empirical) analysis of the prevailing
situation at ground zero is paramount.
INTRODUCTION
At a time when development
financing in services and tourism-based
economies such as Barbados, which are
dependent on travelers, continues to be
rattled by the lingering effects of on-going
developments in Europe and the slowed
recovery process in other developed
markets, it is imperative that the decision
makers, in their efforts to foster economic
growth, grasp with great detail the

12

In 1976, the Tourism Society of England

defined tourism as the temporary short term
movement of people to destinations outside the
places where they normally live and work and
their activities during the stay at these
destinations. It includes movement of people for
all purpose as well as day visits or excursions
(Ghimire, 2003).

49

domestic product (GDP) in 2011. Figures

published by the Caribbean Tourism
Organization for 2011 indicate tourist
(stay-over) arrivals in Barbados reached an
estimated 567,724. This was in addition to
619,054 cruise-ship passengers and a
number of other excursionists (CTO
2011). These figures allow Barbados to be
ranked as the second most favoured tourist
destination, behind Jamaica, across the
CARICOM member states.
From the international perspective,
the potential for tourism services
worldwide remains high both in volume
and receipts. According to the United
Nations World Tourism Organization
(2012) statistics for 2011 while continuing
to increase tourist arrivals reached 983
million and tourism receipts generated an
estimated US$1,030 billion. These figures
represent an increase of 4.6% and 3.9%,
respectively, as compared with 2010. As a
result the prospects for Barbados and other
developing countries to expand their
tourism industry and capture the
opportunities it may offer for socioeconomic development are potentially
great. However, any country wanting to
develop its tourism industry, or remain
globally competitive, needs to be able to
build and improve accommodation
facilities, provide an adequately educated
and trained workforce, and provide
effective marketing (OECD Policy Brief
2008).
Poon (1989) has highlighted a
number of salient facts on tourism in the
Caribbean, which all remain pertinent to
the survival of Barbadian tourism today.
Tourism continues to grow on a global
scale, to which there remains no close
substitute, particularly for the Caribbean. It
must be noted however that tourist
destinations and experiences are highly
substitutable and therefore suggests
immense competition within the industry.
Small countries similar to Barbados and
within the Caribbean have to compete with

the lions of East Africa, the temples of

India, the novelty of China and the
cathedrals, beaches and ski slopes of
Europe. In a study commissioned by the
Commonwealth Secretariat in 1987, there
were listed several pillars to the future
sustainability of Caribbean tourism. These
included:
1. the innovativeness of the tourism industry
2. the overall development of the services
sector of which tourism is one component
3. the development of the tourist facilities
and services based upon flexibility,
segmentation and diagonal integration as
opposed to mass standardized and rigidly
packaged holidays, host and tourists.
As important as this sector has
become, time has proven that it can be
difficult for businesses (new and existing)
in the services trade to obtain financing. It
is posited that these types of investment
proposals offer strong opportunities and
an investors decision to finance a proposal
represents a sound business opportunity.
Despite this fact however, securing
adequate financing, critical to the longterm survival and success of any business
within the sector, continues to be a
difficulty. Businesses within tourism are
well aware that tourists are always seeking
new experiences, and in order for them to
be or remain competitive, the quality of
their service must be maintained, if not
enhanced, continuously.
The development of any sector in
an economy needs continuous investment
and tourism is no exception.
LITERARY SURVEY ON TOURISM
FINANCING
Despite the increasing importance
of tourism at various levels for a range of
economic reasons, there remain limited
studies which focus on tourism financing.
However, in this section, an attempt is
made to review previous work related to
50

different exploratory methods of providing

tourism financing.
In a 1971 report produced by the
International Union of Official Travel
Organization (IUOTO) the details of the
public and private banks, commercial
companies, international organizations and
other agencies that were already
contributing to financing tourism projects
or are prepared to provide financing were
highlighted. The research also contains the
terms and conditions for the financing
along with time duration, rate of interest,
collateral requirements and or guarantees
and related information. Overall, the report
aimed to provide a picture of the capital
market for the promotion of the tourism
industry. Some of the major findings were:

The most common forms of

financing are of the traditional
kind: mortgage loans for the
financing of buildings and loans
secured by pledges for the
financing of the equipment.
However, the capital made
available in this way rarely covers
more than 50% of the cost of the
work. The balance is covered by
novel supplementary types of
financing, such as leasing or
franchising.

It was also indicated that the

traditional divide between public
and private funds is becoming
considerably blurred. Public funds
are often combined with private
funds into one in the same project.

developing
countries.
The
study
investigated the pattern of investment
financing and argued for commercial
considerations rather than political. It also
emphasised the need for proper investment
legislation, which is simple and easily
communicable and specifically designed to
protect the investor. Noting that there is
confusion among the government agencies
caused by overlapping roles and functions,
the author lauded the single window
policy13 as an appropriate policy for
investment.
In a recent study, Bishnu Prasad
Gautam (2008), while considering the
macro effects and the availability of fiscal
space, investigates the effects of tourism
industry on GDP and finds a significant
positive relationship between tourism
financing and GDP in Nepal. Moreover,
the role of various sources of tourism
financing, including government financing
and the loan financing of banks and
financial institutions, on economic growth
has also been examined and the result
supports the conventional wisdom that
there is significant positive relationship
between the variables.
Results from the study suggest that
to finance the tourism sector, several
strategies and sources may be tapped.
Among domestic private investment,
government budget and foreign aid
(bilateral and multilateral), other sources
such as foreign direct investment and

13

The single window concept of investment

promotion and facilitation is meant to provide the
prospective investor with a single nodal agency
through which contact is made with different
government agencies that provide services to
investors or regulate operational aspects of
investment. While the single window may be
just that on the investors side of the window, on
the authoritys side there still remains a
multiplicity of different departmental agents
whose legitimate interests need to be reconciled.
These different agents need to be coordinate
efficiently by the nodal agency.

Similarly, in a study undertaken by

Bennett (1991) though confined to tourism
financing took the analysis a step further.
Using Fiji, Indonesia and Nepal as case
studies, the purpose was to provide a
practical framework and guidelines for
formulating policies and strategies for
financing
tourism
development in
51

capital market, among others, should be

explored.
The study further posited that the
government expenditure for tourism
promotion and investment on civil
aviation, as well as the loan disbursed by
the commercial banks and Nepal Industrial
Development Corporation has been
significant for the development of tourism
industry. Moreover, it has been a benign
agent
for
hotels
and
other
tourism business. It is the investment that
has brought the significant changes in the
infrastructure
and
superstructures
necessary for tourism to reap the benefits
from such industry. Empirical analysis
relating to the effectiveness of tourism
financing showed the significant impact of
tourism financing on economic growth. It
clearly illustrated that tourism financing has
a significant economic impact. Further, the
analysis also showed the significant impact
of various sources of tourism financing
such as the government, commercial banks
and Nepal Industrial Development
Corporation as well as foreign aid and loan
disbursement.
Auliana Poon (1989) undertook a
study that sought to analyse tourism
financing in the Caribbean with Barbados
as the country under review. The major
objectives of this research were to explain
how the sector is financed and what forms
of finance are available to the sector, the
special needs of small establishments, and
the views of hoteliers regarding the
problems and prospects for hotel
financing.
Poons (1989) major finding from
the study was that subjects experienced
high operating costs which were
exacerbated by the public sector through
high taxes and duties which proved to be
all-pervasive problems for the sector. From
the smallest to the largest, hotels were
almost unanimous in identifying taxes and
duties as a constraint to their operations. A
point was also made that the current

strategy by hoteliers is more one of tax

avoidance, rather than, one of investment,
as it should be.
The research also noted that when
hoteliers were asked to identify the major
constraints and opportunities facing the
industry over a ten year period, all, with the
exception of one, could not outline
opportunities for the sector. Invariably, the
burden seems to rest with short term
considerations of cost, duties and taxes.
Therefore, instead of building foreign
competitive strategies and investment
plans, too much focus had been placed on
the immediate problem of high cost. The
author further suggested urgent action in
addressing this matter, concluding that the
critical issues of finance, profitability, and
high costs hit at the very heart of
developing strategy and policy for the
sector.
TOURISM FINANCING
In the words of Chand (2000),
finance plays a life sustaining role in the
industrys development. It acts as a
lubricant in the process of economic
growth and is an essential element for
everyday activity. Thus, adequate supply of
financing increases the overall growth and
development (Chand 2000) of the industry.
Poon (1989) has also pointed out
that the availability of and conditions for
financing offered to the industry affect all
of the above factors and indeed the future
of tourism. It is a reality that the financing
requirements for tourism operations can
range from a substantial amount of money
for new equipment to relatively smaller
amounts to help with marketing costs.
However, it is suggested that over the years
persons within the services (tourism) sector
in Barbados have experienced particular
difficulties in obtaining financing from
existing institutions, including those
established to assist the services sector.
Statistics exists, which would indicate that
this struggle may have been amplified by
52

the financial restraints imposed by financial

agencies and the reduction in fiscal space
being experienced by governments as a
result of the global financial crisis. It is
interesting to note that business-persons
within the sector have expressed similar
levels of frustration when seeking financial
assistance, whether small or large.
The problem of financing also
exists in other countries. For instance,
according to Kenyas Minister for Tourism
and Wildlife:

interest and other repayment terms. In

addition, in a country like Barbados, it also
depends on the investment climate and
local tax policies, as the government
generally provides incentives to induce
economic activities and growth, and
generate revenue.
Similarly, the supply of financing
also depends on the rate of interest. In the
Barbados environment, similar to many
small developing countries, sources of
tourism financing range from direct
government financing and multilateral and
bilateral loans and grants to financial
institutions as well as third party foreign
investments. Nevertheless, the utilization
of domestic capital and firms internal
sources can also be the enduring supply
(Seaton 1994). Thus, tourism financing
comprising government investment in civil
aviation and annual expenditure on tourism
and loans supplied by financial institutions
are the necessary lubricants to the sector.
Given the significance of tourism to
Barbados, this can also effectively prove to
be the lubricant for overall economic
growth. For the purposes of this review, a
number of these financing facilities have
been identified.
Previous research has revealed that
there is no shortage of funding facilities
available to trade (tourism) financing. The
following section outlines a number of
available financing facilities (direct and
indirect), which cater to the provision of
financial resources to the wide range of
operators or business persons within the
local services industry, and exclusively
tourism. It includes all the options that
were available at the time of this study, but
excludes the standard commercial bank
credit terms facilities available for all
business ventures.
Despite the numerous financing
facilities available to tourism related
operators, the use of these facilities has
been very low. The question therefore
remains, what are the underlying causes

The availability of finance to develop and

promote the tourism industry is also critically
important for the industrys further growth
and development. A major problem limiting
tourism development is the unavailability of
finance on favourable terms over a long period
of time. Existing financial institutions are
often unable to meet the needs of those wishing
to develop new tourism facilities or wishing to
refurbish existing facilities because of erroneous
lending conditions (Kenyas Minister
for Tourism and Wildlife, 2006)
Research indicates that there are
various sources of financing for the
tourism sector. The following two sections
will therefore highlight, first, the
determining factors of demand for
financing in the sector while the second
section will follow with the supply side
sources of tourism financing in Barbados.
DEMAND FOR & SUPPLY OF TOURISM
FINANCING
As indicated above, all tourism
based business enterprises need financial
resources
to
undertake
profitable
investments. The quantity of investment
goods demanded depends on the interest
rate, which measures the cost of funds
used to finance investment (Mankiw,
2003). In actual fact, the demand for
investment financing depends on the
marginal product of capital and expectation
of future growth as well as the rate of
53

behind the low demand for financing

facilities in a nation which is heavily reliant
on the survival of the tourism sector.
Further it begs the question what measures
can be implemented to boost overall trade
in the services sector and more particularly
tourism?
According to the Government of
Barbados, in the 2012 Financial Statement
and Budgetary Proposal, the cost of
financing from the commercial banks is
too high, and the established mechanism
(financing facility funds) does not provide
the necessary concessional ease needed.
This follows the statement made by Abbott
(1996);

Barbados Tourism Development

Act (2002)

Replacing the previous Hotel Aids

Act of 1956, this facility expands incentives
for investment in the tourism sector
beyond the traditional. Incentives are
offered to restaurants, recreational facilities
and services, development of attractions
which emphasise the islands natural,
historic and cultural heritage and for the
construction of properties in non-coastal
areas. Provisions are made within the Act
for investors in tourism projects to benefit
from write off of capital expenditure and
150.0% of interest; there is also exemption
from import duty, value added tax (VAT)
and environmental levy in respect of
furniture, fixtures and equipment as well as
building materials, supplies and equity
financing14.
According to the Act, approved
developers and certain investors, other
than commercial banks, may be granted the
following tax concessions:

the domestic banking system, provide

most trade-related finance which
contributes to the high cost of trading
notwithstanding the proliferation of
facilities, there is a shortage of managerial
skills and funding on appropriate terms
to enable CARICOM members to
operate an efficient and effective
multilateral trade and payment system.

1. Exemption from income tax on

interest earned on a loan made to
an approved developer to finance
any development work during the
development period;
2. Income tax at a reduced rate of
30.0%;
3. Initial and annual allowances on an
industrial building at 40.0% and
6.0% respectively;
4. Initial and annual allowances on a
commercial building at 20.0% and
4.0% respectively;;
5. Exemption from import duties and
value added tax on inputs for the
construction of new buildings or
the refurbishment of existing
buildings;

A Snapshot of the Tourism Financing

Facilities and Programme
For many years, the Barbados
focus for the development of tourism has
increased. This has led to the establishment
of numerous finance assisting facilities
being offered to the range of tourism
related operators, in efforts of developing a
sustainable sector; competitive worldwide.
This section will briefly review a number of
the currently available financing facilities,
programmes and policies within the sector.
This will exclude any facility originating
directly from commercial banks to the
private sector or any provided by the
development bank solely for government
related projects.
14

Equity Financing refers to money obtained from

investors in exchange for an ownership share in
the business. The main advantage to equity
financing is that the business is not obligated to
repay the money.

54

6. Exemption from charges on the

repatriation of interest or capital
for a period of ten years;
7. Exemption from land tax on the
improved value of the land;
8. Exemption from property transfer
tax payable by vendors on the
initial purchase of the property,
whether by national or nonnationals.

the principal outstanding to arrive

at the instalment amount due15.
3. The rate of interest will be
calculated at the rate of 5.0% per
annum.
Tourism Loan Fund (TLF)
The TLF provides loans for the
refurbishing and upgrading of eligible
hotels and attractions and/or for the
construction of facilities to be used for the
purpose of carrying on business in the
areas of historical cultural and natural
heritage attractions.

Through its utilization, this form of

indirect financing offers a measure of relief
to the financial burden imposed by local
taxes and duties.

1. Maximum Loan size - the higher of

$4.5 million or 15.0% of total
capitalization of the Fund.
2. Minimum loan size is $50,000.
3. The moratorium under this loan
facilities ranges from one but not
exceeding three years.
4. Interest
is
calculated
at
approximately 3.0% below the
weighted average prime rate of
commercial banks.

Enterprise
Growth
Fund
Limited
(EGFL)
Equity
Financing Loan Facilities

Small Hotels Investment Fund (SHIF)

The SHIF assists with marketing,
management, procurement of joint services
and refurbishment. It finances projects that
clearly demonstrate the will to enhance the
financial
viability
and
operational
performance of the small hotel sector. The
SHIF is restricted to the Small Hotels of
Barbados Inc. (SHBI) and its members
whose properties comply with the
minimum standards established by the
European Travel Trade. Additional:

Under both (SHIF and TLF)

funding facilities, the EGFLs security on
loans will generally take the form of a first
legal mortgage but the Fund is prepared to
take second mortgages in instances where
80.0% of the market realisation value of
the underlying security is adequate to
liquidate all prior charges and the Fund's
exposure. Recognising the provision of this
alternative form of financing (opposite to
the traditional debt financing offered by

1. The maximum funding per

application is $5.25 million. While
there is no specified minimum for
the SHBI, the minimum loan size
for SHBI members is $50,000.
2. Loan repayment periods are 10
years or less including a 5 year
moratorium on the repayment of
interest and principal. Note that
during the moratorium period,
interest charges shall be applied to

15

Example: Assume an application is approved

for a loan of $100,000. Then interest charges will
accrue at the rate of 5.0% per annum during the
five-year moratorium period. Thus at year five,
assuming no payments are made, the principal
balance outstanding will be $128,335.56. Over the
remaining five years the loan balance of
$128,335.86 will be amortized at an interest rate
of 5.0% per annum resulting in sixty equal
installments of $2,421.85; eventually totaling of
$145,311.00.

55

commercial banks) where the sale of a

stake in the business is required; it is
recommended that an analysis on the
effectiveness of this new paradigm of
financing be done. Additionally, the
across the board terms and conditions
offered may have varying impacts on the
small and medium size operation. This
becomes a discouraging factor in the
overall demand for loans.
As highlighted in the 2011
Barbados Economic and Social Report,
funding facilities continue to provide loans
to hotels and other tourism related
attractions. Under the SHIF, the level of
funds capitalized for 2011 amounted to
$3.7 million. The amount of funds
disbursed during the period totaled $71,681
representing a decrease of 92.6% when
compared
with
the
disbursement
($970,964) of 2010. After fourteen years
and $38.9 million in approved loans, the
general take-up of the SHIF can be
described as moderately low.
Regarding the TLF, no funds were
disbursed during 2011 and no new loans
were approved. However, this fund has
proven to be more attractive in the past as
the accumulated value of loans approved
for the period 1998 to 2011 totaled $299.0
million, which can be viewed as a notable
contribution to the industrys development.
Without the backing of empirical
evidence at this point, it has been argued
that the relatively low utilization of these
funds may be a direct result of this
development
funding
institutions
commercial bank-like, low risk lending
policy. However, consideration may be
given to the special accommodating terms
of individual loan contracts.

Development (World Bank) and the

Central Bank of Barbados, the ICF,
through qualified financial intermediaries,
provides medium and long-term credit to
productive enterprises operating mainly in
the private sector. Included in the many
areas of activity that are eligible for loans,
is tourism and other services.
At the end of 2011, the financial
policy of the ICF includes the following:
1. Each sub-loan was limited to BDS
$7.5 million.
2. The ICF shall discount 90.0% of
qualified sub-loans (of the funds
required to finance an approved
project)
made
by
financial
intermediaries in amounts not
exceeding (A) 80.0 per cent of the
cost of a sub-loan consisting of the
starting-up of operations or of
production of a new line of
products by the beneficiary and (B)
90.0 per cent of the cost of a subproject consisting of expansion of
an on-going operation of the
beneficiary. In addition, the full
credit risk of the loan, and the
responsibility to secure it properly,
resides with the intermediary.
3. The ICFs uses a variable interest
rate on its discounts to financial
intermediaries. At the end of 2011,
the interest rate to financial
intermediaries is 3.25%.
4. Maturity periods on sub-loans
granted by the ICF shall be
according to the requirements of
each
sub-project.
Maximum
maturity shall be 25 years including
a grace period of up to 3 years
except when the sub-loan is
financing working capital not
related to fixed assets, or where
part of the sub-loan is to be used to
finance technical assistance related
to an investment project in which
cases the repayment period of sub-

Central Bank of Barbados Industrial Credit Fund (ICF)

Established by the Government of

Barbados in 1983 with funding from the
International Bank for Reconstruction and
56

loans, or part thereof as the case

may be, shall not exceed 15 years.
The maturity and grace period will
depend on the capacity to repay
and other characteristics of the
particular project.

industry, tourism and tourism related

industries, or any other areas of industrial
activity which can make a worthwhile
contribution to exchange earnings and
employment.
Caribbean
Financial
Services
Corporation (CFSC), through the BIF,
makes loan, bond or equity and quasi
equity investments in Barbadian owned
private sector enterprises. The Fund aims
to strengthen the Barbados Securities
Market. Therefore, it aims to make
available shares of investee companies to
the securities market and to divest its
holdings through this medium where
appropriate. Equity investments may be
comprised of common or preferred stock
and/or any combination of the two. All
investments must be accompanied by a
Shareholder's
Agreement.
Only
a
maximum of BDS $1.5 million of the BIF's
funds will be committed to a single
company.
Capitalised at US$10.45 million, the
CFSC (2012) reported that under the BIF,
approximately 37.0% or US$3.87 million of
all investment related to tourism & tourism
related services.
Detailed information on the funds
financial policies was limited and as such it
will be difficult to fully appreciate why the
demand is at the level which is reported.
One may assume that this may be as a
function of limited public relations.
In addition to the funds created, to
further assist businesses in obtaining
adequate security for their loans from
credit institutions, the Government of
Barbados initiated guarantee schemes to
provide further assistance in boosting the
development of the industry.

In 2011, the Central Bank of

Barbados issued figures which indicated
that the ICF recorded an increase in the
value of loan approvals and the levels of
disbursements when compared with 2010.
The ICF approved six (6) applications
totalling $13.3 million compared with six
applications valued at $10.4 million in
2010. The tourism sector alone accounted
for $5.9 million.
These figures represent a low
demand for this financing option. Given
the medium (commercial banks and other
financial intermediaries) of disbursement,
one may argue that even though the loan
supply is available, the interest imposed on
projects that a borrower may actually
encounter should be called into question.
Are the loan rates mutually beneficial to
the financial institutions and their clients
within tourism? Note that the guarantee
provided by the Central Bank to ensure
repayment of the loan should offer a
measure of reduced risk in a high risk
environment such as tourism. Have loans
through this facility offered the desired
competitive edge to businesses within the
industry, or is there a situation where more
can be offered to boost demand?

Caribbean Financial Services

Corporation
Barbados
Investment Fund (BIF)

The BIF was established as an

equity fund in July 1992 to provide equity
financing for small- and medium-sized
businesses operating in Barbados. The
fund can be used to finance projects that
are considered commercially viable in
sectors such as manufacturing, agro-

Central Bank of Barbados Enhanced Credit Guarantee

Scheme (ECGS)

According to the Central Bank of

Barbados (2007), the ECGS is designed to
57

offer a substantial degree of protection to

credit institutions against possible losses in
respect of the credit granted to the
enterprises. Note that new loans and debt
service payments through approved
financial intermediaries in respect of hotels
and enterprises in the tourism sector that
provide accommodation for tourists will be
eligible for guarantee support Tourism
Loan Guarantees
After a modest improvement in
2010, activity in the Credit Guarantee
Scheme for small and medium-sized
enterprises contracted. At the end of 2011,
there were 23 guarantees outstanding with
a maximum liability of $1.4 million as
compared with 34 guarantees with a
maximum liability of $1.9 million at the
end of 2010. The 2010 figure was
significantly higher owing to the provision
of ten (10) guarantees to the Barbados
Agency for Micro Enterprise Development
Limited (Fund Access) for the first time.
The 2011 figure also reflects significant
cancellations of guarantees by one financial
institution. Total lines of credit decreased
from $2.4 million to $1.8 million during the
year.
A brief analysis of the previous
years guarantee facilities may suggest a
higher demand, particularly for the small
and possibly medium-size operators within
the industry. That is, financial guarantees
appear to be preferred to, or at least
challenge, the condition under which loan
are provided by institutions, whose initial
objective was to aid in the development of
sectors such as tourism. A pertinent
question here is whether there is a
disconnect between what is now in
demand and the terms of what these
agencies are willing to supply.

Central Bank of Barbados Tourism

Loan
Guarantee
Facility (TLGF)

The TLGF provides credit

enhancements to financial institutions for
short-term facilities to the hotel sector.
Guarantees may be issued to cover
facilities for debt service and new shortterm loans to hotels and enterprises
providing accommodation for tourists in
Barbados. The facility can be accessed
through a number of banks and non-bank
financial intermediaries across the island.
These include commercial
banks,
Citicorp Merchant Bank, Consolidated
Finance, Fund Access, Globe Finance,
Enterprise Growth Fund, Signia Finance
Group, Caribbean Financial Services.
Established in January 2011 with
initial capital of $15.0 million, the central
bank provided no guarantees under the
scheme, as at the end of the year.

BLADEX
Facilities

Trade

Financing

On a regional scale, there is an

option available to tourism related
operations. The Latin American Bank of
Export (BLADEX) was established by the
Central Banks of Latin American and
Caribbean countries to promote trade
finance in the Region. The bank provides
short-term rediscount facilities to bank in
the region. Its business model focuses on
providing products and services along the
entire trade finance value chain. Its target
client base comprises the corporations that
are active in foreign commerce, both on
the import side as well as on the export
side, and the domestic financial institutions
that cater to these corporations with
broad-based banking services.

58

At this time, little can be concluded

on the effective use of the above form of
financing facility without the appropriate
statistics. However, the question that may
be posed at this time would relate to the
level of public awareness of the operators
in tourism industry.

there is disequilibrium between the

demand and supply of financing facilities
for tourism. There may be the need for
greater commercial consideration to
balance that of the political (Bennett 1991).
This research raises a number of
unanswered questions. What are the actual
factors responsible for the lack of demand
for special tourism finance across the
industry? Is it because Governments have
yet to provide the necessary conditions to
enable these tourism operations to survive
in a globally competitive industry, as Poon
(1989) argues? Is the private sector aware
of all available financing options? Do the
operators across the tourists industry lack
the necessary skills or resources, or even
appropriate business acumen, given limited
economies of scale, to warrant financial
support? Or, is it that in a high risk
environment, investors are overly cautious?
The answers to these questions will have to
be investigated in future empirical research.

CONCLUDING REMARKS
With greater distancing from a
primarily agrarian based economy, the
services sector, and in particular tourism,
has become critical to the development of
Barbados;
even
superseding
the
manufacturing industry. Recognising the
growing possibilities that may be obtained
through a competitive tourism industry,
the Barbadian government has over the
years sought to assist the development of
the industry through a number of policy
initiatives and programmes. According to
the 2008 OECD Policy Brief, any country
wanting to boost its tourism industry, or
remain globally competitive, needs to be
able to build and improve accommodation
facilities, provide an adequately educated
and trained workforce, and provide
effective marketing. Appropriate financing
is therefore required. But, is the Barbados
economy fiscally capable of offering better
conditions or have all sources and
strategies been exhausted (Gautam 2008),
which then points to a need to improve
productivity?
In 1989, Poons study of the
Barbados tourism industry revealed that
the availability of and conditions for
financing offered to the industry is critical
to the future of tourism and its survival.
However, being among the many countries
unable to provide the appropriate and
necessary concessional ease for the tourism
operator, Barbados continues to establish
financing facilities guaranteeing options
with the development of tourism as a
primary focus. Additionally, the factors
affecting the demand for the available
tourism financing are clear cut. Yet still

PRELIMINARY RECOMMENDATIONS
Confronted by a situation of tight
financial constraints coupled with the need
to foster economic growth and
development through the tourism industry
performance, the following innovative
measures are suggested for investigation to
aid in correcting the current imbalance:

59

Accommodating packages: The

development of loan packages with
moratorium and creative repayment
terms. Alternatively, facilities (similar
to the EGFL) include a negotiable
component where each loan and its
repayment terms are offered based
on individual analysis. For example,
the creation of negotiable financial
packages inclusive of the possibility
of longer repayment periods, which
accommodate the capabilities of
small groups (entrepreneurial based
venture) in the industry and yet
remaining a viable financial agency.

WORKS CITED

Market the benefits of investing in

the tourism industry: Government
should review the option of
providing greater incentives to
encourage financial and non-financial
institutions, inclusive of agencies
such as the Barbados Lotteries
Board, to invest in tourism related
businesses that would allow them to
further aid in the development of the
nation and expect return more in-line
with rational abilities of the player in
the sector.

Abbott, George. "Resource mobilisation in

the Caribbean Community." In
Financial Development and Economic
Growth: Theory and Experiences from
developing countries , by Niels Hermes
and Robert Lensink, 240. London:
Routledge , 1996.
Bennett,
Oliver.
"Investment
and
Economic Cooperation in the
Tourism Sector in Developing
Asian Countries." Tourism Financing
in ESCAP. Tokyo and Sendai
Japan, 1991.
Central Bank of Barbados. "Enhancement
of Credit Guarantee Scheme."
Central Bank of Barbados. 2007.
http://www.centralbank.org.bb/Se
rvices/credit_guartee_scheme_enh
ance.pdf (accessed August 8, 2012).
CFSC. Caribbean Financial Services Corporation
- Barbados. August 8, 2012.
http://www.cfsc.com.bb/search_.c
fm?Link=1&query=Barbados
Investment Fund (accessed August
8, 2012).
Chand,
Diwaker.
Nepal's
Tourism:
Uncensorded Facts. Varanasi: Pilgrims
Publishing, 2000.
ESCAP. "Opportunities and Challenges for
Tourism Investment,." ESCAP
Tourism Review (United Nations),
no. 21 (2001).
Gautam, Bishnu Prasad. "Economic
impact of Tourism Finance in
Nepal." Economic Review, Occasional
Paper, April 2008: 62-73.
IUOTO. A study on Sources of and Conditions
of Financing. Geneva: International
Union
of
Official
Travel
Organization, 1971.
Ministry of Finance and Economic Affairs,
Research and Planning Unit .
Barbados Economic and Social Report
2011. Bridgetown: The Ministry of

One stop tourism assistance: A

tourism assistance database or agency
responsible for advocating and
providing all information on available
funding programs and advice for
tourism related operations.

A model of tourism financing to be

examined is that which is offered by the
Indian community. Through the Tourism
Finance Corporation of India Ltd (TFCI)16,
promoted
by
All-India
Financial
Institutions, Investment Institutions and
nationalised Banks, catering specifically to
the financial needs of the tourism industry,
the country has been able to successfully
improve the sector (Tourism Finance
Corporation of India Ltd 2007).
16

TFCI provides financial assistance to

enterprises, for setting up and/ or development of
tourism related activities, facilities and services,
which inter-alia include hotels, restaurants,
holiday resorts, amusement parks and complexes
for entertainment, education and sports, safari
parks, rope-ways cultural centers, convention
halls, all forms of transport industry, air-taxis,
travel and tour operating agencies, tourism
emporia, sports facilities etc. besides, TFCI also
co-ordinates and formulates guidelines and
policies related to financing of such projects. As a
developmental role, TFCI organizes seminars
/participates
in
tourism-related
activities
organized by Ministry of Tourism, Government of
India and by the trade bodies /associations etc.

60

Finance and Economic Affairs,

2012.
Poon, Auliana. "Financing Tourism in the
Caribbean - International Trends &
Caribbean Prespectives." Conference
on Financing Development in the
Caribbean. Barbados, 1989. 131.

Seaton, A. V. Tourism: The State of the Art.

John Wiley & Sons, 1994.
Tourism Finance Corporation of India Ltd.
Tourism Finance Corporation of India
Ltd. helping tourism grow. 2007.
http://www.tfciltd.com/ (accessed
August 14, 2012).

61

BARBADOS, THE MILLENNIUM DEVELOPMENT GOALS (MDGs): AND

THE POST-2015 DEVELOPMENT FRAMEWORK

Mr. Mark Durant

Senior Economist
Economic Affairs Division

62

existing information and progress to date.17

The last previous report, prepared by Dr.
Tara Inniss was entitled Comprehensive
Report to Inform the Presentation by the
Government of Barbados to the Annual
Ministerial Review of the United Nations
Economic and Social Council on
Barbados Progress towards Achieving the
MDGs and the Other Internationally
Agreed Development Goals and was
prepared June 2007. This brief now
updates that report.

V. BARBADOS, THE MILLENNIUM

DEVELOPMENT GOALS (MDGS):
AND THE POST-2015
DEVELOPMENT FRAMEWORK
By
Mark Durant
Summary
The largest ever gathering of world
leaders welcomed the new millennium by
adopting the United Nations Millennium
Declaration in September 2000. Endorsed
by 189 countries, the declaration was then
translated into a roadmap setting out eight
(8) Millennium Development Goals
(MDGs) to be reached by 2015. These
MDGs were established to facilitate
monitoring of progress in achieving
satisfactory levels of human development
at the global and the country specific level.
In effect, they provide a framework for the
entire international community to work
together toward a common end making
sure that human development reaches
everyone, everywhere and providing
concrete, numerical benchmarks for
tackling extreme poverty in its many
dimensions.
These eight MDGs, which are
broken out into twenty-one quantifiable
targets, are measured by sixty indicators
and
generally,
support
for
the
implementation of the MDGs has
increased steadily in Barbados since their
introduction in the early 2000s. These
MDGs have been modified to fit the
Caribbean context and this report identifies
the goals, targets and indicators in this way
(See Appendix I). According to the UN
Development Group (UNDG), countryspecific status reports for the MDGs were
produced by Barbados for use in global
reporting. However, it must be noted that a
2003 Barbados and Eastern Caribbean
MDG report showed wide variations in

Barbados Progress to Date

With just two (2) years to go before
the target date, Barbados has made a
positive contribution towards the global
effort to achieve several of the Millennium
Development Goals. Barbados has
basically achieved five (5) of the eight (8)
goals and has ensured that children
everywhere are able to complete a full
course of primary schooling (goal 2), has
taken a leadership role to reduce gender
disparity in all levels of education (goal 3),
and there has been reductions in child
mortality as well as the maternal mortality
ratio (goal 5). However, there outstanding
issues related to the eradication of poverty
(goal 1) and to ensuring environmental
sustainability (goal 7), while the eighth goal,
development of a global partnership for
development (goal 8), still needs to be fully
addressed. However, Barbados HDI has
consistently been ranked among the top 50
countries over the 2005 2011 period with
a rank of 38 out of the 185 countries in
2012 UNDP/HDR.
The
Economic
Recession
and
Barbados Vulnerabilities
There are important considerations
which hamper the continued achievement
17

Andrew S. Downes and Doris Downes, The

Millennium Development Goals in the Eastern
Caribbean: A Progress Report, UNDP 2003.

63

and maintenance of the MDG successes in

Barbados. These are largely related to; the
current global recession and maintaining
the countrys current macro-social
resilience; key data gaps; as well as slow
progress related to some goals {poverty
(Goal 1), environmental sustainability
(Goal 7) and global development
partnership (Goal 8)}.
It must be
remembered that even though Barbados
has done reasonably well in the MDGs, it
faces severe economic challenges relating
to its overall macroeconomic and fiscal
position and its social challenges with an
aging population and an epidemiological
profile of Chronic Non-Communicable
Diseases. Moreover, these achievements
and gains can be reversed if the current
international and national macroeconomic
situation the country faces does not
improve in the short to medium term.
The mere fact that Barbados has
graduated from the World Bank and is now
being defined as a high middle income
developing country has removed Barbados
from the category of developing countries
that can benefit from the level and nature
of Official Development Assistance other
similar developing countries have access to.
Moreover, the country is in the process of
implementing a five-year Medium Term
Fiscal Strategy which has objectives of
reducing government expenditure and the
overall fiscal deficit. This would have
obvious implications for the programmatic
areas of all ministries throughout
Government. Moreover, given the recent
downgrades (December 2012) by Standard
and Poors through a lowering of its
sovereign credit ratings on Barbados to
'BB+/B' from 'BBB-/A-3' and a recovery
rating of '3' to Barbados' foreign-currency
debt, which reflected their assessment of
meaningful recovery (50.0 per cent to 70.0
per cent) in the event of a sovereign
default, means that Barbados will have
severe challenges in raising much needed
development capital on the capital market.

Moodys Investors Service also announced

in December 2012, that it had lowered the
islands foreign and local currency bond
ratings to Ba1 from Baa3, while
maintaining that the economic outlook was
negative. These developments impact
expansion activity from the internal
financial core. Therefore the issue of
maintaining and strengthening Barbados
economic and social resilience must
therefore be at the forefront of discussion
as it relates to achieving the current MDGs
as well as for the Post-2015 Framework
negotiations.
Monitoring of the MDGs
The process of MDG monitoring
has encouraged Barbados to commit to
poverty monitoring as a regular process. As
such, the country has undertaken a
Caribbean Development Bank (CDB)
funded Country Assessment of Living
Conditions in 2010 in the form of a
national poverty assessment which updated
the
previous
assessment
program
published in 1997. Results from the study
indicated that the poverty situation in
Barbados worsened since the previous
study with one in five persons being in
poverty in 2010 as opposed to one (1) in
thirteen (13) in the 1997. At the end of
2012, discussions were also continuing in
efforts to design a specialized multidimensional poverty measurement with the
UN Development Programme (UNDP)
that can be used to accurately reflect the
unique development conjuncture facing
Barbados and the other Eastern Caribbean
island countries.
The challenges have been many.
Production of accurate and timely nationallevel information on the MDGs has been
very slow, however, leading to incomplete
or partial aggregation of MDG data for the
Eastern Caribbean. Lack of data especially
for poverty issues remains a major
developmental challenge as it creates
barriers for effective planning, policy
64

analysis or strategy development. In

addition, the future fiscal concerns for
Barbados and other Caribbean states may
represent a severe challenge to the
continued funding of social sector
programmes.

Barbados has been attempting a

comprehensive approach to the issue of
poverty and other social needs. The
country has implemented the Universal
Intake Form to assist in the upscaling of
information in the sector and has started

Summary of MDG Progress for Barbados

One

Two

Three

Four

Five

Six

Seven

Eight

Poverty

Education

Gender

Child
Mortality

Maternal
Health

HIV/AIDS

Environment

Partnership

Partial

Achieved

Achieved

Achieved

Achieved

Achieved

Changes
needed

Insufficient
information

Challenges will remain that need to

be overcome in the broader national
context in order to maintain the gains
already achieved and at the same time, also
to make meaningful progress in attaining
those goals not yet attained Goals (1), (7)
and (8). The remainder of this brief focuses
on issues related to these outstanding goals
and concludes by proposing a possible
post-2015 development agenda could be
for Barbados.

the processes of compiling a National

database for the sector.
In August 2012, the Government
initiated a local version of the Chilean
Puente
(Bridge)
Social
Protection
Programme (ISEE Bridge Programme)
which involves the assessment of 30
vulnerable households with a view towards
their identification. As such, a Stabilization
Enablement and Empowerment program
has been established by the Bureau of
Social Policy. This new approach will
serve to remove clients from a generation
of poverty towards full independence from
the system.
In addition, an Inter-Ministerial
Committee has been established to
strengthen the social safety net and this
committee comprises Ministers of
Government, high level officials and a
number of agencies who work in the sector
and has the aim of ensuring that the poor
and vulnerable in Barbados do not
succumb to poverty and hunger. This of
course allows for representation on
poverty and social safety net issues by the
highest offices of the Government of
Barbados.
Presently,
initiatives
to
eradicate/alleviate poverty having been
moving beyond the indicative stage given
that the information gathering and
monitoring systems have been improving
with the creation and implementation of

Goal 1: Eradicate Extreme Hunger and

Poverty
There is no clear information set
which directly states that Barbados has
achieved goal one of the MDGs. While
this goal is considered still not achieved in
the Barbadian context, the Government of
Barbados is proud of the fact that it has
invested more in social and environmental
programmes over the past decade than at
any other time, especially on poverty
reduction, the delivery of health services,
housing, education, solid and liquid waste
management, water resources management,
and
coastal
zone
management
programmes.
Notwithstanding,
the
containment and reduction of poverty
continues to be paramount over the
medium term. Moreover, since the start
and completion of the 2010 Country
Assessment
of
Living
Conditions,
65

such tools as the Universal Intake Form

and the National Database for Client
Tracking. The Universal Intake form
allows clients to be assessed by a single
agency, for all types of assistance sought.
This information forms a critical part of
the National Database and as more
persons access service, the database will
become a very effective tool for the
purposes of monitoring and evaluating the
sector. In light of these facts however,
there is a clear need for there to be a
consistent and sustained programme of
data collection to make informed decisions
about poverty and other social needs of the
society going forward.
The Government of Barbados has
been working through the thirty (30)
Constituency Councils to identify and
assist persons who were previously
unknown to the government social services
system. In cases of dire need the
Constituency Councils would have directly
provided assistance in the areas of grants,
financial assistance, assistance with rents,
food stuff etc. In other cases, referrals were
made to the various social services and
resource persons.
Over the last five years, the
Government has increased the level of
national financial assistance to vulnerable
persons (children, persons living with
disabilities and other vulnerabilities). In
addition, Government has increased the
level and quantity of welfare grants and
food vouchers provided as well. For
pensioners in Barbados, both rates for
contributory
and
non-contributory
pensions would have increased twice over
the last five years in addition to increases in
the reverse tax credit for the elderly and a
one-off energy grant for the most
vulnerable who would want to purchase
energy saving technologies.
The Government of Barbados is
also in the process of preparing a National
Social Policy framework and is about to
embark on a Growth and Poverty

reduction strategy. It also has plans to

contribute to the food and nutrition
security of the nation through the
production of nutritious food at reasonable
prices and on a consistent basis. This will
be done through the facilitation of an
enhanced level of participation in
agricultural production, by providing
access to critical means of production e.g.
land, water, capital and inputs in
conjunction with an expanded welfare to
work programme to allow for the national
development of a culture of behavioural
change, empowerment and self-reliance, in
relation to the treatment of poverty.
GOAL
7:
ENVIRONMENTAL
SUSTAINABILITY

ENSURING

Target 9: Integrate the principles of

sustainable development into country
policies and programmes and reverse
the loss of environmental resources
The task of spearheading progress
toward sustainable development in the
period immediately following the Global
Conference
on
the
Sustainable
Development of Small Island Developing
States was entrusted to a Cabinet
appointed National Commission on
Sustainable Development (NCSD). The
major task of the NCSD was the
production of the Barbados Sustainable
Development Policy (2004) and the
Medium Term Development Strategy
(MTDS) 2010 2014.
This policy, along with the
National Strategic Plan (NSP) 2006-2025
serve as the primary references that shape
the programming direction for the Ministry
of the Environment, Water Resources and
Drainage (MEWD). Specifically, articulated
at Goal 4 of the NSP, The Green
Economy: Strengthening the Physical
Infrastructure
and
Preserving
the
Environment while speaking to a vision

66

for the future, is also a recognition of past

actions taken to embrace a green ideal.
The Government of Barbados has
been pursuing various elements of a Green
Economy throughout the countrys
development. The Green Economy has
been defined as an emerging global
marketplace model that seeks to respond
to the worlds major environmental
problems by optimizing social, economic
and environmental value- this is most
commonly referred to as the triple bottom
line or the three pillars of Sustainable
Development.
Greening the economy requires the
reconfiguring
of
business
and
infrastructure to deliver better returns on
natural, human and economic capital
investments, while at the same time
reducing greenhouse gas emissions,
extracting and using less natural resources,
creating less waste and reducing social
disparities.
Together with a multi-pronged
legislative regime, and institutional support,
the Government of Barbados continues to
affirm its commitment to a path of peoplecentred, sustainable economic growth and
development in the form of its Green
Economic model. Significant inroads
towards realising this goal have been
accomplished through the design of our
administrative and institutional structures.

Women Organisations, the Academic

Community and Private Sector entities.
THE BARBADOS SUSTAINABLE
DEVELOPMENT POLICY (BSDP)
The BSDP was approved and made
one of the documents of Parliament in
2004 and is used by both decision-makers
and citizens to adapt current attitudes and
behaviours to reflect both the principles of
sustainability and the opportunities which a
green economy represents for Barbados.
The overarching goal of the Policy is to

ensure the optimization of the quality

of life for every person by ensuring that
economic growth and development
does not occur to the detriment of our
ecological capital. The major objectives
of the Policy were:
1. to formulate a national definition
of sustainable development;
2. to provide a national framework
for decision-making based on our
principles
of
sustainable
development;
3. to
promote
principles
of
sustainable
development
and
encourage all persons to adopt and
apply these principles in every
aspect of decision-making; and
4. to sensitize and educate all persons
in Barbados about key issues and
conflicts between development and
environment and the need to make
wise consumption and production
choices.

THE NATIONAL COMMISSION

ON SUSTAINABLE
DEVELOPMENT
The Cabinet-appointed NCSD was
the most visible and successful structure
put in place for the co-ordination of
national sustainable development. This
original Commission, appointed in 1994,
comprised 30 members representing
Government and all major groups
including
Non-Governmental
Organisations (NGOs), Community-Based
Organisations (CBOs), Trade Unions,

CONSTRAINTS TO
IMPLEMENTATION
The constraints experienced with
implementing the Barbados Sustainable
Development Policy can be summarized as
follows:

67

1.
Capacity: There are inadequate
human, financial and technical resources
dedicated to sustained implementation and
evaluation activities associated with the
BSDP. Particular attention is required in
areas such as research, public education,
further policy development, lobbying and
advocacy and demonstration projects.
Additionally, a dedicated staff, comprising
administrative and technical personnel, is
needed to facilitate the work of the NCSD
which is envisaged would have ownership
for monitoring implementation of the
policy. During its tenure, the NCSD
operated as a voluntary entity and without
an allocated budget or independent
secretariat (this may change in the future),
the creation of which would enhance the
ability of the NCSD to fully implement and
institutionalize the BSDP.

including the Town and Country

Development Planning Office, the
Environmental Health Inspectorate, the
Environmental Protection Department and
the Ministry of Agriculture (including the
Fisheries Division), play an important
regulatory role but there is still room for
improvement especially with respect to
coordination. Current resource constraints
mean that environmental enforcement is
not a priority for the Barbados Police
Force or other relevant legal entities.
4.
The need to sensitise policy
makers as to the exact nature, and benefits
of, a Green Economy. Many still operate
on the premise that economic development
can only be achieved through increases in
economic growth. This view results in
significant funding being allocated
primarily to economic development
oftentimes to the detriment of the proper
management of finite natural resources,
and certainly to the detriment of a viable
Green Economy.

2.
Information
for
Decisionmaking: The performance of a greenbased economy, much like a traditional
one, is greatly enhanced by the availability
of key data and information regarding its
performance.
This
Sustainable
Development and environment feedback is
not readily available at this point in time.
Barbados is working assiduously to
develop a coordinated approach to
statistics and data collection. Where data is
available it exists in differing formats and
in different locations, which makes it
problematic for decision-makers to get
information on a sustained basis and at
opportune moments. This scenario also
has an added impact on the effectiveness
of regulation and enforcement practices.

5.
Although Barbados is a developing
country, it has a high standard of living
which means its primary economic and
social indicators follow those exhibited by
developed countries. This brings with it
waste
management,
health
and
conservation problems which tax the
limited resources of finance and physical
space needed for adequate management of
associated issues.
6.
Communicating
sustainable
development to the general population is a
challenge, for many the concept of a green
economy is a relatively new one, or one
whose advantages have not been fully
understood or appreciated. For effective
education, a variety of messages have to be
transmitted to a number of different
publics in differing formats. The resources
required to adequately provide the volume
of information required in the appropriate
format have been ad hoc and information is
usually provided in response to various

3.
In terms of enforcement, there is
a lack of legal authority and institutional
capacity needed for the implementation
and enforcement associated with the
BSDP. While a significant amount of
legislation exists for the management of
natural resources, some of it needs to be
updated to reflect current national goals
and circumstances. A number of agencies
68

situations.
The approach to public
education and information requires
streamlining and coordination and will be
bolstered by the requisite information for
decision-making.

during the past ten years and the net effect

of this scenario has been increased
employment and a higher demand for
housing. The Government of Barbados,
being acutely aware of the population
dynamics and the need to match these with
the stock of housing, is committed to its
two main housing goals namely

7.
There is inadequate opportunity for
timely reviews and evaluation of the
planning process.

i.

The provision of adequate shelter

for all, that is: improving, and
maintaining acceptable, living and
working
conditions
on
a
sustainable basis; and

ii.

Home ownership for the majority

of the population by providing the
opportunity for the widest majority
of Barbadians to own property.

Target 10: Halve, by 2015, the

proportion of the population without
sustainable access to safe drinking
water and basic sanitation
A focus on a Green Economy also encouraged the
national prioritization of several cross-cutting issues
resources which are seen as an integral part of a
sustainable Barbadian economy, and necessary for
the health and welfare for the Barbadian populace.
Fresh water resources and waste management were
indicated as critical among the resources necessary
for this development to occur.

The
Government
however
recognizes that high land prices and
construction costs have placed these goals
out of reach of those persons with
moderate incomes. Whereas the upper
income groups are better able to meet their
obligations, the greater challenge lies in the
supply of affordable housing. Hence, the
Government through the Ministry of
Housing and Lands and the National
Housing Corporation (NHC), together
with the private sector has and will
continue to embark on vigorous
programme to provide affordable and
adequate housing.

With respect to water quality, 96-98% of

households in Barbados are connected to the public
water supply system with the remaining 2-4%
having easy access to the public water supply. Good
groundwater quality and a relatively effective
disinfection system have ensured that Barbados has
a biologically safe water supply. Specific water
management measures are implemented to achieve
specific targets or standards.
Target 11: By 2020, to have achieved a
significant improvement in the lives of
at least 100 million slum dwellers

Goal 8: Global
Development

Description of the Barbados

Scenario: Over the past two decades
Barbados has undergone significant
demographic changes reflected in a
growing population, a longer lifespan of
residents, improved health care and quality
of life, better educational opportunities and
the concomitant gravitation towards higher
quality jobs and wages. The overall
economy has recorded strong growth

Barbados commitment as a global

partner for development is unchallengeable
and is aptly reflected in its unequivocal
support for the work of the United
Nations and its Specialized Agencies as
well as other regional, hemispheric and
international organizations and agencies.
Barbados proudly hosts six UN agencies at
UN House including the UNDP Subregional Office of the United Nations to
the OECS and Barbados; the Delegation of
69

Partnership

for

the European Commission for the Eastern

Caribbean, and the Organisation of
American States. Barbados has also
participated actively in virtually all UN
meetings and conferences on Housing,
Population,
Environment
and
Development (Brazil, 1992), Women
(Beijing) and Financing for Development
(Monterrey). In 1994, Barbados hosted the
UN Global Conference on the Sustainable
Development of Small Island Developing
States which produced the Barbados
Programme of Action (BPOA).
While
Barbados
HDI
has
consistently been ranked among the top 50
countries over the 2005 2011 period, the
Government of Barbados is ever mindful
of the inherent vulnerability of the country
to external shocks and is alert to
opportunities to urge the international
community to take account of the special
needs and circumstances of small island
developing states (SIDS) and to help them
to build their economic, social and
environmental resilience to debilitating
external shocks such as rising fuel prices,
high transportation costs, peripherality,
vulnerability to natural hazards and other
related factors that lead to declining terms
of trade.

The Public Sector Investment

Programme (PSIP) has benefited from
development
assistance
through
multilateral funding agencies. Between
1999/00 and 2005/05 the cost of the PSIP
expanded to $1707.21 million with the
main sources of foreign finance coming
from the IDB and CDB. IDB contributed
52.0 percent of foreign aid with $154.42
million; the CDB contributed 41.0 percent
with $125.49 million, while the World
Bank contributed $19.59 million or 7.0
percent.
PSIP projected spending over
2005/06 to 2008/09 is for $1090.8 million
and Government has stated that it intends
to increase its efforts to have projects
financed by the Chinese government, the
European Investment Bank, as well as
increasing its requests to the CDB. The
projects under consideration are mainly
infrastructural, environmental, educational
and health-related. Unless Barbados is able
to attract the requisite ODA necessary, this
could reduce the rate at which the island
develops because it would be difficult to
raise these funds from internal sources
without tightening fiscal and monetary
policies further.
Moreover, price shocks in major
commodity markets have significantly
reduced Government revenues. The
combined effect of these developments has
been to force heavy borrowing to
implement public sector improvement
programmes (PSIP) as well as to fund
recurrent expenditure. In such situations,
the temptation to cut back on financing of
social and environmental programmes can
become almost irresistible.

OFFICIAL
DEVELOPMENT
ASSISTANCE
Having
been
graduated
as
developing country with middle-income
status, Barbados no longer has access to a
large range of funding mechanisms, which
once helped to build and maintain gains in
human development. In the face of a rapid
decline in aid flows between the Caribbean
and its traditional development partners,
over the past decade, this has led to
Barbados and other Caribbean countries
having to carry the brunt of the cost of
implementing international sustainable
development agreements and the MDGs.

DEBT SUSTAINABILITY
In seeking to control the countrys
debt levels,
the Government is
endeavouring to reduce the ratio of public
debt to under 60.0 percent (the
international standard) by 2012. At the end
70

of 2011, Barbados total public debt stood

at 84.0 per cent of GDP, representing an
increase of 22.0 per cent over 1997 figures.
Current debt levels reflect in part the
efforts of the Government during the
2002/2003 fiscal year to bring the
economy out of recession at the earliest
opportunity.
For the period April to September
2012, the fiscal deficit was estimated at 3.2
per cent of GDP. Likewise, at the end of
September 2012, Governments revenue is
projected to have decreased slightly below
target on account of the rebasing of tax
base and increases in the income tax
threshold recording an intake of
BDS$1,019.4 mn, down BDS$88.1 on the
previous period a year earlier. For this
period, total expenditure was estimated to
have decreased by BDS$161.9 mn to
record and outlay of BDS$1,550.2, well
within the expenditure target set in the
Medium Term Fiscal Strategy 2010-2014 of
BDS$1,712.1 mn. Current Transfers for
this period increased slightly by BDS$8.3
mn to BDS$479.4 mn, marginally higher
than the MTSF target.
All of
Governments deficit financing was
sourced from the domestic market. Gross
government debt as a percentage of GDP
was 77.0 per cent while net government
debt was 57.0 per cent. The fiscal outlook
remains grounded in the targets as set out
by the Medium Term Fiscal Strategy 20102014.
A
POST-2015
FRAMEWORK

POVERTY
The mere fact that levels of
required fiscal constraint will impact the
social provisioning needed in Barbados in
the near to medium term future definitely
implies that the eradication of extreme
poverty and extreme hunger must remain
high on the post-2015 development agenda
and cannot be seen in isolation from the
other goals.
AID
For the very uncertain economic
future the global community faces
together, there are four broad avenues
through which dependence on aid can
influence sustainability of the post-2015
MDGs:
1. Degree of dependency on aid:
Where
countries
are
heavily
dependent on aid, governments
remain
vulnerable
to
sharp
fluctuations in aid flows. In some
cases, certain sectors within a country
may rely heavily on aid to function

DEVELOPMENT

Therefore the country is proposing

the seven below items to inform part of
the discussions going forward.

Social Resilience- greater focus on

building resilience, and adaptive
capacity
and
greater
local
ownership
of
governance
mechanisms
Revenues and Services - Manage
revenue and build capacity for
accountable and fair service
delivery.
Security - Establish and strengthen
peoples security;
Justice - Address social and
economic injustices and increase
peoples access to justice;
Legitimate Aid Infrastructure Foster
inclusive
political
arrangements
and
conflict
resolution;
Greater SIDS Visibility

Economic Resilience - Generate

employment
and
improve
livelihoods,
greater
aid
transparency and debt management
instruments for SIDS;
71

and thus are vulnerable (e.g., the

health sector).
2. The procyclicality of aid: Where aid
is procyclical, it can exacerbate rather
than mitigate the impacts of business
cycles and/or extreme weather-related
shocks. Where aid is countercyclical,
it can have an important smoothing
or insurance function. The empirical
evidence suggests that, on average, aid
is procyclical.
3. The volatility of aid: Where aid is
volatile or unpredictable, recipient
governments are less able to plan
expenditures effectively. This raises
the costs of financial management
and can worsen the composition of
government spending (e.g., divert
resources from capital investment
towards
recurrent
expenditure).
However, it should be noted that not
all volatility in aid is necessarily
negative; volatility in aid can be
associated with aid shortfalls and aid
windfalls.
4. The uses of aid: While the headline
ODA figure suggests substantial
increases in aid over the last decade,
this masks the extent to which
relatively little aid actually reaches
recipient countries overall. Some
sectors (e.g., the social sectors) have
seen larger increases in aid than others
(e.g., agriculture and the productive
capacities). However, the evidence
shows that much aid has had little
meaningful impact on development
outcomes and the MDGs.

by many donors, recipient countries and

international organizations alike, aim to
improve the effectiveness of aid through a
pre-defined set of actions to be undertaken
by both donors and recipients. Progress,
however, has so far been mixed. However,
the position does not seem to have
changed much in reality. While the UN
System for example has adopted a
harmonised system for cash transfers
(HACT), and has created a harmonised
multi-country development assistance
framework, this is something yet to be
done by the larger donor community.
Policy responses to secure sustainability of
the MDGs in aid-dependent countries
must therefore seek to address these
concerns. This will necessarily involve
actions by aid recipient countries and aid
providers.
Donor Harmonisation and Planning
Participation
Given Barbados excellent relation
with its donors and as it relates to the
MDGs in particular, the UN System, if the
United Nations cannot assert strong and
assertive leadership, it must play the role of
curator. A curator is a specialist who cares
for the heritage. As curator of its MDG
heritage, four tasks must be undertaken:
(i) convene national reviews and debates;
(ii) promote participatory consultations;
(iii) aggregate outcomes; and (iv) serve as
gatekeeper for new targets.
However, unlike the current
MDGs, the post-2015 goals should not be
seen to have been designed by and for aid
donors and other international partners
alone. The post-2015 targets must be much
more broadly owned and also relevant to
countries affected by economic and social
fragility, as they persevere in their efforts to
attain lasting growth and a significant
reduction in poverty levels.

These problems are well known

and have inspired a number of
international efforts aimed at addressing
them, such as the Paris Declaration on Aid
Effectiveness of 2005 and the Accra
Agenda for Action of 2008, both under the
auspices of the Organisation for Economic
Co-operation and Development (OECD).
These international agreements, endorsed
72

Barbados should raise its concern

about the effectiveness of the use of
resources released and the rigidities in
conditionalities needed to make assistance
available. Barbados should stress the need
to deliberate for additional measures and
initiatives aimed at ensuring long term debt
sustainability through increased grant based
financing, and to consider significant debt
relief or restructuring for middle-income
developing countries, with an unsustainable
debt burden, as well as the exploration of
mechanisms to comprehensively address
the debt problem.
Behind concerns about volatility lie
concerns about price levels and behind
both, lie concerns about food security and
energy costs. While producers benefit (or
at least those who are net producers and
whose asset base and knowledge enable
them to respond effectively), consumers,
especially poor consumers, are severely
adversely affected by high prices. Food and
energy account for a very high share of the
total budget of the poorest households and
because poor households often consume
foods that are less processed the effect of
rises in commodity prices is felt more
strongly.
In addition, poorer households are
usually larger and the food and energy
consumed in any given period is generally
more than that of any other economic
group.
These households find their
nutrition and financial status (especially of
pregnant women, children and those
affected by long-term diseases such as
HIV), as well as their capacity to purchase
education, health care, or other basic needs
compromised, when food and energy
prices are high.
In the case of Barbados, being
classified as a high middle income country,
presents challenges in terms of getting
concessional finance from multilateral
agencies. In this regard, the ever changing
global landscape continues to challenge our
development agenda and assigns enormous

responsibility on policy makers. Within this

context, the SIDS issue must continue to
be advanced given that small island
developing states like Barbados remains
vulnerable to external economic shocks.
Discussions concerning an agenda
for the improvement of aid effectiveness
should be fashioned around human and
institutional capacity strengthening. There
is a need to initiate a technical cooperation
mapping exercise at the regional and
national levels.
Research cooperation can be
fragmented with little or no transfer of
skills and technology. In this regard, the
new
design
of any
cooperation
effectiveness agenda should be flexible and
must embrace a mechanism that seeks to
build the requisite bridges for the effective
transfer of knowledge and technology
which is on par with developed countries.
Technical cooperation ownership
at the country level would be integral in
developing a comprehensive and coherent
international
technical
cooperation
framework. Barbados has signaled its
intension to embrace technical cooperation
and technical assistance as new pillars for
developmental sustainability.
It is imperative therefore, to recall
that the Barbados Programme of Action which
summarizes the case for special
consideration for Small Island Developing
States by stating that Although they are
afflicted by economic difficulties and
confronted by developing imperatives
similar to those of developing countries
generally, small island developing states
also have their own peculiar vulnerabilities
and characteristics, so that the difficulties
they face in the pursuit of sustainable
development are particularly severe and
complex.
Caribbean countries have not
developed an aid strategy which improves
the effectiveness of aid. Countries should
first develop an aid strategy which is linked
to the budget so as to increase the
73

effectiveness of aid. Barbados is currently

developing a Technical Cooperation and
Aid Strategy.
Donors should coordinate their
activities in order to reduce duplication and
should use common application and
disbarment procedures in order to simplify
the process. However harmonization must
not lead to a reduction in the overall
support levels and should not be used by
donors to increase their leverage during the
negotiation process.
Aid
resources
should
aid
developing countries in attaining their
Millennium Development Goals (MDGs)
and Aid should produce concrete and
measurable results on the ground. All
countries should take stock of the aid that
actually worked and what did not work.
An electronic platform should be
developed which would facilitate a forum
where donors and recipients could interact
with each other and work together.

However, within the structure of

the UNDP Office for Barbados and the
OECS is a specific sub-programme entitled
the Support to Poverty Reduction in the
Caribbean (SPARC) which has as its
mandate such a comprehensive framework.
It can allow Barbados, through concerted
efforts with the Barbados Statistical Service
and the respective agencies connected to
aspects of the MDGs to provide enough
supportive mechanisms to regularize the
identification, collection and dissemination
of data and indicators. How well this
mechanism is being used may be an item of
concern more so given the need to
determine collectively a Post-2015
framework for Barbados and the OECS.
By improving the nature and frequency of
reporting, the use of such a mechanism will
allow the region to better collectively
address medium to long term needs and to
improve the relevance and effectiveness of
local and external sources of assistance.

CONCLUSION

References

While Barbados has done very well in the

achievement of the MDGs and their
targets so far with five (5) MDGs achieved
out of the eight(8), it has also recognised
the need to continually assess and redesign
policies, initiatives and responses to
economic and social issues if necessary.
However, in order to ensure the
effectiveness
of
interventions
and
successful returns on public investment
(economic or social) a rigorous and
comprehensive institutional and policy
framework is fundamental.
There is no such framework
existing outside of the budgetary processes
and the monitoring of development
strategy. Responsibility for the MDGs are
not centrally located within anyone public
agency even though there are agencies
responsible for the collection of data
related to the MDGs and their targets.

1. UNDP
Assessment
of
Development
Results
(ADR)
(2009).
Challenges
in
2. UNECLAC,
Meeting
the
Monitoring
Requirements of the MDGs,
(2004).
3. Andrew S. Downes and Doris
Downes,
The
Millennium
Development Goals in the Eastern
Caribbean: A Progress Report,
UNDP (2003).
4. Barbados Country Assessment of
Living Conditions Final Report
(2012).
5. UN Human Development ReportsVarious Editions.
6. Tara Inniss. Comprehensive Report
to Inform the Presentation by the
Government of Barbados to the
Annual Ministerial Review of the
United Nations Economic and
74

Social Council on Barbados

Progress towards Achieving the
MDGs
and
the
Other
Internationally
Agreed
Development Goals. (2007).
7. Leisa Perch. A Framework for
Monitoring the MDGs and
Sustainable Human Development
in the CARICOM Region. UNDP.
(2005).

75

AN EXPLORATORY STUDY ON THE RELATIONSHIP BETWEEN REAL

EFFECTIVE EXCHANGE RATES AND IMPORT DEMAND IN BARBADOS - A
COINTEGRATION-ECM ANALYSIS

Mr. Cyril Gill

Economist
Ministry of Industry, International Business, Commerce &
Small Business Development

76

VI. AN EXPLORATORY STUDY ON

THE RELATIONSHIP BETWEEN
REAL EFFECTIVE EXCHANGE
RATES AND IMPORT DEMAND IN
BARBADOS - A COINTEGRATIONECM ANALYSIS

preliminary evidence signals the need to

monitor real effective trends in exchange
rate policy as such trends have
implications for the stability of Barbados
economy.
INTRODUCTION
Understanding how import flows
react to changing economic conditions is
essential to the design of any successful
macroeconomic sustainability policy for all
countries. This is particularly so for small
open economies whose day to day
activities depend largely on foreign
imports of goods and services. Faini
(1988) and Craigwell (1994) suggested that
understanding the impact of import flows
is even more crucial for the sustainability
of structural adjustment programs posited
by the IMF as policymakers can more
appropriately determine the overall
feasibility of such adjustment programmes.
The literature also placed special emphasis
on formulating the right mix of exchange
rate policy as it had implications for the
responsiveness of business activities,
relative prices and consequently trade
flows which could either improve or widen
the trade imbalance.
Barbados has had its encounters
with a balance of payments (BOP) crisis in
the early 1980s which may have been
severely affected by the oil price hikes of
the seventies.
Given that Barbados
depends heavily on oil imports for the
production of electricity and hence the
continuation of business activity, most
export-oriented firms and businesses
would have been uncompetitive during
this period. This further exacerbated the
current account crisis which the country
faced as the generation of foreign
exchange earnings from export sales were
on the decline. Jordan (1998) also noted
similar observations during the early
nineties where excessive demand by
nationals for consumer imports coupled
with an un-proportionate growth in

By
Cyril Gill
ABSTRACT
Small open developing economies
such as Barbados are heavily dependent on
trade - primarily imports - for business
continuity, social development and a host
of other reasons. It is for this reason that
Barbados is a net importer of foreign
goods. While import trade does not
necessarily determine the exchange rate in
Barbados and while there is no strong
economic rationale which purports that
exchange rates under a fixed regime move
to equilibrate trade imbalances it is
purported that movements in the real
effective exchange rate may signal the
stability of the dollar which by extension
influences the magnitude of import trade
flows.
This paper examines the
relationship of real exchange rate changes
and import demand in Barbados for the
period 1970-2010. Through the use of a
Cointegration Error Correction Model this
study presents a variation of the
Marshallian demand model to estimate the
long and short run dynamics of the import
demand function. The results indicate that
accounting for the real exchange rate
effects in the import demand equation
shows special significance to the Barbadian
scenario as the tested import demand
components are cointegrated and thus
cannot drift too far apart. Real effective
exchange rates in particular prove to be a
significant contributor to import demand
conditions in the long-run and hence
conforms to theoretical construct of
exchange rates in the long run. This
77

exports or unmatched flow of foreign

investments led to a BOP crisis. These
crises remind us that being able to predict
import flows more accurately can help
policymakers assess more confidently the
overall sustainability of current macroeconomic policies, adjustment programs,
determine the appropriate speed of the
trade liberalization process, optimal taxes
and exchange rate policies [see Craigwell
(1994) and Emran and Shilpi (2010)].
Outside these commonalities however, the
fact that excessive demand for imports
were observed during periods of crisis
under a fixed exchange rate regime
suggests that foreign exchange policy may
enlighten us on the nations import
demand conditions.
In this paper, I consider an aspect
of exchange rate policy that has so far
escaped much attention in the import
demand literature as it relates to Barbados.
The impact of Barbados real effective
exchange rate regimes on the stability of its
trade inflows is examined through the
application of the Johansen (1988, 1989)
and Johansen and Juselius (1990)
multivariate method to check the rank of
cointegrating relationships. Afterwards an
error correction term is specified to
determine the speed of adjustment of the
real exchange rate component to the long
run import demand equilibrium position.
The main motivation for this
analysis stems from the fact that the stable
environment which the fixed exchange rate
regime provides seems to be partly
responsible for the influx of imports during
times of crisis.
The literature, both
theoretical and empirical, suggests that a
deterioration in a nations identifiable
economic
fundamentals
(declining
international reserves, overvaluation of
domestic currency, increasing interest rates,
increasing budget deficit financed by credit
creation, and increasing current account
deficit) will lead to the expectation of a
devaluation thereby resulting in, inter alia,

capital flight and hence the fulfilment of a

prophetic devaluation of the dollar [see
Funke (1996)]. Before devaluation occurs
the dollar under a fixed exchange rate
regime still enjoys a superior buying
capacity compared to other currencies as a
result of its appreciated value. Under such
circumstances firms and individuals may
indulge in excessive import purchases in an
effort to exploit the short-term windfall
capital gain made possible by the
overvalued dollar Funke (1996). From an
import policy perspective it is critical
therefore to monitor trends in the real value
of the exchange rate as it may signal
changes in imports demanded by
consumers.
It is with this perspective that the
objective of the paper seeks to uncover the
relationship between real exchange rates
and its corresponding speed of adjustment
to import demand, ceteris paribus. If a high
speed of adjustment is realized it would
suggest that policy makers may consider
changes in the real value of the dollar on
import investment behaviour as a signal to
a nations exchange rate regime stability.
This paper proceeds as follows:
Section II presents a review of selected
literature. Section III, provides the
theoretical motivation for this paper;
Section 1V, describes the data used;
Section V, discusses the methodology to
be employed; Section VI, presents the
empirical results and discussion and
Section VII, provides some concluding
remarks.
SELECTIVE LITERATURE REVIEW
The literature on the determinants
of import demand in the case of Barbados
abounds the focus of which centers on
modeling the import function around the
Marshallian demand function.
The
Marshallian approach estimated the
aggregate import demand function within
the framework of the imperfect
substitution model, relating the total
78

quantity of imports demanded by a

country, to the level of its real expenditure
or real income18, and to price of imports
and domestic substitutes19, measured in the
same currency.
Napier (1982) utilised Ordinary
Least Squares (OLS) estimation in
examining the yearly trends in imports for
Barbados and used disaggregated data
according to sections of the Standard
International Trade Classification (SITC)
over the period 1954-70. Napier found
that real GDP as an explanatory variable
did not adequately capture import demand
as consumers demand for import is not
necessarily attributed to the value of goods
and services of a country but rather it is
determined by money borrowed from
abroad and held in deposits with
commercial banks.
These deposits
constitute the sources through which
banks lend to consumers; with this
increased access to finance consumers now
capable of demanding more imports.
There were however, several deficiencies
in this study as the modern econometric
literature would suggest. The fact that
issues
such
as
stationarity
and
cointegration relationships were not
incorporated into the analysis would raise
questions such as identification, estimator
efficiency, and in general would raise
questions about the statistical inference
made based on the conventional T and F
tests. Hence, the low significance of the
real GDP reported by Napier may be
questionable.
There were several objections to
the use of Ordinary Least-Squares (OLS)
to estimate import demand. Orcutt (1950)

in particular criticized OLS as the

appropriate method to estimate price and
income elasticities. The primary argument
here was that one must assume that there
is no possibility of a supply relationship
between prices and qualities. If this supply
relationship is less than infinitely price
elastic, the estimate would be biased and
inconsistent. In order to allow for the
simultaneous relationship between the
quality and prices of imports, a supply
function would have to be specified.
Craigwell (1994) made a number of
contributions in advancing the modeling
of the import demand function for
Barbados. First Craigwell estimated the
traditional import demand function
(assuming zero degree homogeneity)20,
using Engle and Grangers two step
approach and applying Hendrys general to
specific model selection criteria. Secondly,
he disaggregated the domestic price index
into traded and non-traded price indices.
Thirdly, he included credit from the
banking system in his model. With the
main objective of determining whether
these disaggregated components along
with non-traditional variables such as
credit and money proves to be significant
in explaining import demand. His study
concludes that such non-traditional
variables are useful in modeling the import
demand in Barbados.
Jordan (1998), attempted to model
the import demand function in the context
of a small open economy by employing the
Johansen co-integration approach using
annual data from 1973 to 1997. As the
literature for developing countries
proposes, Jordans model was specified
with the use of a variable which
exemplifies the level of restrictions faced
by many developing countries; this variable

18

There is some controversy as to whether real

income or real expenditure should be used. While
real expenditure includes imports and excludes
exports, real income includes exports and excludes
imports.
19 The consumer tries to maximize utility subject to
a budget constraint, for this case the importer is a
producer trying to maximize utility subject to a cost
constraint. See Goldstein and Khan (1985).

20

The model was specified to that of the imperfect

substitute model (Goldstein and Khan [1983])
which implies the existence of both imports and
domestic production, in addition to intra-industry
trade

79

was the net international reserves. Other

non-traditional variables were included in
his analysis including the real personal
credit variable suggested by Craigwell
1994, and the relative price index. Jordan
found that net international reserves were
indeed important in explaining consumer
behaviour and could be used by
Governments to gauge consumer patterns
for a particular year.
Campbell and Sealy (2000) set out
to determine the long and short run
variables that influenced demand for
motorcar imports, applied cointegration
analysis over the period 1970 to 1999
(yearly data). This study sought to
determine the major contributors to car
imports in Barbados. The results of the
cointegration analysis revealed that in the
long run; real income, commercial bank
credit, bank repayments, relative prices, the
unemployment rate and a dummy variable
representing the 1990-1992 period of
economic recession influenced the demand
for motorcars. In the short run, real
income, commercial bank credit, bank
repayments and relative prices were the
important determinants in explaining the
demand for motorcars.
No theoretical or empirical paper
thus far has attempted to model directly
the relationship between real exchange
rates and import demand. This paper
therefore fills the gap.

Put another way the theory of PPP

assumed that net exports are highly
responsive to small changes in the real
exchange rate. Therefore, the theory of
PPP can be viewed as a special case of the
import demand model considered here.
This paper therefore concentrates on an
alternative dimension of the import
demand equation as can be found in Halil
Fidan (2006).
There is a vast body of empirical
literature on the effects of the real
exchange rate, the relative price and gross
domestic product on national imports.
These studies are generally concerned with
the aggregate impact and demand for
imports, which in like manner this paper
will also focus. For further reading please
see Cushman (1988), Caballero and Corbo
(1989), Lastrapes and Koray (1990); these
studies all indicate that there is significant
effect of exchange rate on foreign trade
flows.
MODEL SPECIFICATION
The import demand function as
explained by Craigwell (1994)
is
traditionally specified to that of the
imperfect substitute model (Goldstein and
Khan [1983]) which implies the existence
of both imports and domestic production,
in addition to intra-industry trade; hence
the general form of the import function
(assuming zero degree homogeneity)
models import volume as a function of
real domestic income and relative prices
(see Houthtakker and Magee (1969),
Leamer and Stern (1970) and Murray and
Ginmam for further reading).

THEORETICAL MOTIVATION
The proposed exchange rate
component to be included in the model
has its bearing within the theory of
Purchasing
Power
Parity
(PPP).
According to the theory, international
trade responds quickly to international
price differences, if goods were cheaper in
one country than in the next they would
be exported from the first country and
imported into the second until the price
difference disappears.

This is:

Mt = f (Yt, RPt)

eq1

With
Mt - the real quantity of imports in volume
terms;
Yt - real income or domestic economic
activity; and
80

Model selection procedures

RPt - the ratio of import prices to

domestic prices.

In econometric practice the general

to specific (GETS) modeling procedure is
popular, particularly in areas where
economic theory does not afford a
direction in modeling short-run dynamics
of aggregate demand functions. Craigwell
(1994) finds this approach particularly
useful given that it allows one to
incorporate information given by the time
series properties of the data and economic
theory where necessary. This approach as
advocated by Hendry et al (1995) is
adapted here within this study to an extent.
The GETS modeling strategy
generally follows two steps: 1) Formulating
a general unrestricted model which is
congruent, and 2) simplifying the model
sequentially in an attempt to derive a
parsimonious model while at each step
checking that the model remains
congruent. In general the GETS
methodology treats modeling as a process
where the aim is to derive a parsimonious
congruent encompassing model while at
the same time acknowledging that the
currently best available model can always
be improved, Hendry and Richard 1990, p.
323.
In determining the appropriate
structure of the model to be tested, a
number of key and relevant variables were
tested. These variables included slight
modifications of the series original form
and substitutes of the original form such as
nominal GDP (NGDP) and Real GDP
(RGDP) and relative prices compared to
its modified version real relative prices
(see Data Sources section for a description
of the variables). The aim in conforming
to the Hendrys approach is to eliminate
the most insignificant variables from the
model in order to arrive at the
parsimonious model.
In carrying out preliminary checks,
various forms of the import demand
function were modeled using stationary
series under the OLS estimation

The literature identified above for

the case of Barbados suggests that some
additional variables were deemed relevant
in modeling the import function for the
small open economy of Barbados; such
variables included personal credit and net
international reserves and as such were
considered for inclusion in the
specification of the model specification in
this paper.
The motivation for including the
variables such as personal credit and net
international reserves is due to the fact that
credit restrictions in particular directly
influence an individuals ability to purchase
imported goods and hence is critical for
inclusion in the Barbadian model [see
Craigwell (1994) and Jordan (1998)]. It is
also a fact that developing countries
usually impose some form of restriction
whether it is quotas, tariffs or credit and
hence an inclusion of a restriction variable
would be key for the case of Barbados. It
is also argued that the ability to purchase
imports depends on the countrys ability to
pay for those imports, which to a large
extent depends upon the countrys Net
International Reserves Craigwell (1994).
These variables would be considered in
developing the import demand function in
this paper.
As a contribution to the literature
real exchange rate is added to the model,
the significance of which is supported by
economic
theory
and
preliminary
supporting empirical evidence [see
Goldstein and Khan (1983), Cushman
(1988), Caballero and Corbo (1989),
Lastrapes and Koray (1990).] The general
model as purported by Goldstein and
Khan (1983) was adapted to reflect more
relevantly the import demand of Barbados
and to record the impact Barbados real
exchange rate to the demand for imports.

81

framework to get a general idea of the

significance of the various variables to the
import demand function. In summary, the
results present some interesting but not
alarming findings. The p values of the
stationary nominal and Real GDP time
series under OLS estimation were found to
be insignificant (and hence statistically
zero) in every model estimated. The real
exchange rate variable consistently showed
the correct sign and was statistically
significant (i.e. at the 5% level) in all cases
except one. There was some concern with
the relative price variations as these
variables also were shown to be
insignificant.
The formal application of the unit
root tests provided some guidance as to
the model to be estimated and was used in
conjunction with the basic tests of
significance under the OLS framework to
determine the initial modeling of the
import demand function. It is important
to note at this juncture that the formal
application of the Johansen procedure also
helps to identify the parsimonious model
as tests for the lag optimality, the
identification of the rank and the
determination of whether to include a
trend and intercept to form the model
helps give rise to the parsimonious model
and extends Hendrys general to specific
approach to modeling.
The investigation of the data leads
us to the following model to be estimated.

the log of real relative

LRRPt
prices at time t
Ut the error term at time t
0 , 1 , 2 , 3 , 4, 5, represent the
parameters to be estimated
A full description of the variables
in this model and the methods used to
calculate such are presented in the
following section. In this model Net
International reserves (NIR) is not
considered as the preliminary model
selection investigations suggest that the
variable is not significant in determining
import demand. Hence we relax the
relevance of the NIR variable for the sake
of achieving a parsimonious model.
According to the theory of real
exchange rates, if the domestic currency
depreciates this will weaken the purchasing
power of the domestic currency and hence
lead to lower import levels, hence, 1<0
and is expected to be negative. Craigwell
(1994) and Jordan (1998) have found that
real personal credit should be positively
related to import flows, thus, 2>0.
Economic theory also suggests that as
import prices increase relative to domestic
prices quantity of imports demanded will
reduce thus the sign of the coefficient is
expected to be negative, i.e. 3 <0.
DATA SOURCES
The data employed in this study
consists of annual time series over the
period 1970 2008. This data was
acquired from two main sources, the
Central Bank of Barbados Online Statistics
(for the series Real Personal Credit, Net
International Reserves, and Import
Volume); and the International Financial
Statistics (IFS) online database.
All time series were transformed to
their real values by deflating them by the
Barbados Consumer Price Index (as
provided by the IFS). This was done in
order to remove any effects of price over
time from the data. Also the variables

LRMt = 0 1LRERt + 2 LRPCt 3LRRPt + Ut

Where L represents the natural log,
the variables are defined as follows:
LRMt
the log of quantity of
imports demanded at time t
LRERt
the log of real exchange
rates at time t
LRPCt
the log of real Personal
Credit at time t
82

were transformed to their natural

logarithmic forms in order to obtain a
decent spread of the data and for ease of
Variable
LRPC

LRRP
Pd

Pm

LRER

LRGDP

LNGDP
LRIM

interpretation. All indices (CPI, Export

Price Indices for USA, CANADA and
UK) have fixed based 2005=100.

Description and source

Real Personal Credit was measured by taking nominal values for personal credit which were
obtained from the Central Bank of Barbados Online Statistics and deflated by the Consumer
Price Index2005 which was obtained from the IMFs online International Financial
Statistics database.
Relative Prices - is the ratio of import prices to domestic prices, i.e. Pm/Pd. Note: This series
was developed by deflating the import volumes used in calculating the import prices (Pm).
Domestic Price - this variable is measured by the consumer price index for Barbados using
2005 as the base year which was obtained from the IMFs online International Financial
Statistics database.
Import Price - this variable is being measured by a proxy import price index, which was
constructed from the export price indices of Barbados top three exporting countries and
weighted by each countrys percentage contribution to Barbados imports. Barbados total
imports were assumed to be the total imports bought from these three countries (United
Kingdom, United States of America (USA), and Canada) and each country's percentage
contribution was used as a weight. After weighting each series by their requisite percentage
of import value (this the weighted average over the period 1970 2008) the series were
summed to give the proxy import price index for Barbados.
Real Exchange Rate - this variable is a composite index of real exchange rates of Barbados
top three exporting countries. Again the index was constructed from the Central Bank of
Barbados Online statistics on the par rate of Barbados top three exporting countries
currencies (nominal currency values) and weighted by each countrys percentage
contribution to Barbados imports. The weight applied is an average of the respective
countries contribution to imports over the review period 1970-2010.
Real Gross Domestic Product. This variable was obtained from IFS online database which
represents GDP at constant prices.
Nominal GDP was obtained from the IFS online database.
Real Imports. The nominal values of imports as obtained from the Central Bank of
Barbados online statistics and were deflated by the IFS Barbados CPI with fixed based
2005=100 in order to generate the real import series.

METHODOLOGY

series are non-stationary and contains a

unit root. It is very important in time
series analysis (and more so cointegration
analysis) to proceed on the basis that all
variables are stationary; failure to do so
may result in a spurious regression being
formed.21
In this study two basic steps are
employed in determining whether series
are stationary or not:
1. The first step refers to the
graphical inspection of the pattern
of data over time and the
inspection of the correlogram with

Unit root testing

There are several preliminary
important steps to using time-series data in
econometric analyses. The first requires
an examination of the data to determine
the form in which it may be used for any
subsequent estimation as macroeconomic
data generally follows a stochastic process
which is problematic in most econometric
models.
The traditional detrending
procedure separates the trend from the
cyclical component of the series. This
procedure is appropriate for trend
stationary time series. However, many
macroeconomic time-series are difference
stationary. This is to say that many time

21 Spurious regressions may come in various

forms; the most common is when one reaps a
result which gives a very high R2 and a very low
Durbin Watson statistic.

83

special attention on the results of

the
autocorrelation
function
(ACF). The correlogram graphs
the correlation patterns of the
autocorrelation coefficients against
different lags. Typically the ACF
plot that takes a while to die out
signifies presence of a unit root.
2. After the graphical inspection, the
actual determination of whether a
variable is trend stationary or
difference is based upon the results

of unit root tests. In this paper

three formal unit root tests are
employed,
these
are;
the
Augmented-Dickey Fuller, Phillips
and Perron test and the
Kwiatkowski-Phillips-SchmidtShin (KPSS).
The ADF and PP unit root test
gives the null hypothesis that a time series
yt is I (1) integrated of order one. These
tests
are
expressed
as
follows:

ADF
PP
series that appear to be stationary, by
applying the alternative hypothesis.
If perhaps in the event that the
unit root tests shows that all variables are
stationary (meaning the variance, auto
covariance (at various lags) of the
individual series are time-invariant) then
this would give way to estimating the
coefficients through the use of the
standard OLS technique. However, if the
variables are non-stationary in their levels,
the standard regression could be
inappropriate as the conventional t and F
tests may give misleading spurious results;
such as the ones characterised in Appendix
5 (i.e. High R2 and low Durbin Watson
statistic).
If the variables are found to be
non-stationary at levels then they may be
determined to be stationary in their first
differences22.
Once there exists
stationarity due to a linear combination of
the set of variables integrated of the same
order then it is possible for the series to be
cointegrated. To test for cointegration and

We employ the KPSS test for

completeness as it tends to give better
results in the presence of structural breaks;
a feature that is characteristic in the data
on this paper. The KPSS gives the null
hypothesis that a time series is I (0) and is
derived by starting with the model;
KPSS

y;

Where Dt contains deterministic

components (constant or constant plus
time trend) and ut is I (0) and may be
heteroskedastic. The null hypothesis that
yt is I (0) is formulated as HO:
= 0
which implies that
is constant. This
test is a one sided test so that one rejects
the null if the t statistic is less than the
critical value.
It is useful in econometric practice
to employ unit root tests which tests for
alternative null as it adds to the robustness
of the model selection criteria. While
KPSS type tests are intended to
complement the ADF and PP unit root
tests, one can distinguish more clearly the

22 Box and Jenkins, (1970) notes that differencing

a series may result in removing out the long-run
characteristics of the data thereby making the
model capable of explaining only short-run effects.

84

consequently establish the speed of

adjustment of the real exchange rate series
the Johansen procedure was used.

maximum likelihood estimation to

determine the maximum number of
cointegrated
relationship
between
nonstationary variables. The number of
cointegrating relationships is identified by
use of the trace test or the maximum
Eigen value test.
The
Granger
Representation
Theorem, states that once a cointegration
relationship can be uncovered then there
exist at least one valid Error Correction
representation of the data. This allows the
writer to specify an Error Correction
Model (ECM) including the error
correction term to investigate the dynamic
behavior of the model.
The
correspondence between cointegration and
the ECM term indicates the speed of
adjustment of any disequilibrium towards a
long-run equilibrium state.

Testing for Cointegration - VECM

The Johansen maximum likelihood
procedure (1988; 1991) was employed due
to its superior and powerful tests
compared to the next major approach the
Engle-Granger (1987) method.
The
following reasons are noted to be of
concern to the Engle-Granger approach:
Firstly, in the case of multiple
cointegrating vectors, the EngleGranger method often produces a
complex linear combination of all the
distinct cointegrating vectors that
cannot be sensibly interpreted;
Secondly,
the Engle-Granger
procedure does not account for the
possibility of multiple cointegrating
relationships and all the possible
dynamic interactions that could exist
between two or more times series.

EMPIRICAL
RESULTS
INTERPRETATION

AND

Unit root analysis

As alluded to earlier, the Hendrys
approach is also generally embodied within
the context of the VECM framework as
one establishes the parsimonious equation
through testing for the optimal lag length
and determining the optimal fit of the
model by testing for whether to include a
trend or intercept, inter alia.
To help the writer obtain the
optimal lag length the preference as the
literature suggest would be to accept
conclusions of the Akaike Information
Criterion (AIC) and Schwartz information
criterion (SIC), however, as one will see in
the following section there were relatively
harmonious conclusions of the optimal lag
structure.23
The application of the Johansen
procedure presumes the use of the

Informal unit root results

The graphical analysis as illustrated
in Appendix 1 show that most variables
with the exception of Net International
Reserves (NIR) and Real Imports (RIM)
appear to be a stochastic process with a
trend thus signaling the presence of unit
root. The NIR and RIM time series tend
to show evidence of a weak mean
reverting process although still exhibiting
upward trend movement overtime.
The ACF is presented in the
correlogram at appendix II (in levels) and
appendix III (in first differences) and
examines the presence of auto-correlation
at each variables lagged autoregressive
structure. The ACF for all variables in
levels tend to die-out after a long series of
lags.
This signifies that the
autocorrelations for each variable are
significant for a large number of lags; it
also suggests that the autocorrelations at

23

Testing first for optimal lag length tends to

give the most parsimonious model.

85

lag 2 and above are merely due to

propagation of the autocorrelation at lag 1.
This inference is confirmed by the PACF
plots which for all variables are significant
at lag 1 thus suggesting that all higher
order autocorrelations are effectively
explained by the lag-1 autocorrelation.
The formal unit root tests; the
Augmented Dickey-Fuller (ADF), Phillips
and Perron (PP), and KwiatkowskiPhillips-Schmidt-Shin (KPSS) unit root
test were employed, the results of which
are captured in Appendix 3 shows mixed
results particularly the KPSS test. It is
important to note that the reverse null
hypothesis of the KPSS (test for
stationarity) is employed against the ADF
and PP test (a t-test that relies on rejecting
the hypothesis that the series is a random
walk in favour for stationarity) is
established in partial fulfilment of a
parsimonious model.
For all the variables the intercept
and trend is applied in testing for unit root.
This is required given the prior evidence
from graphical inspection carried out in
levels which suggests the presence of a
trend and intercept in each variable, please
refer to appendix 1.
While the Augmented Dickey
Fuller (ADF) failed to reject the presence
of the unit root and concluded that all
variables were integrated of order one,
I(1), the Phillips and Perron unit root
shows that all variables with the exception
of the natural log of real exchange rates
(LRER) are first difference stationary.24
The KPSS stationarity test presents mixed
results for a number of the variables under
analysis. It rejects the null hypothesis that
all variables are stationary in levels except
that of real GDP (RGDP), which is
concluded to be I (0). The KPSS test does
not agree with the PP test as it relates to
the non-stationarity of the real exchange

rate; it concludes that the variable is

stationary at first difference and therefore
supports the conclusion of the ADF test.
In this paper, we weigh heavily on
the output of the KPSS in arriving as it
inspires confidence in enabling one to
present a parsimonious model. All other
variables which were not first difference
stationary under the KPSS test were
therefore eliminated.

Diagnostic tests
Under the Johansen cointegration
framework errors must be normal hence to
ensure estimation procedure confirms with
the Johansen framework errors were tested
for normality within the pure VAR model.
Component

Jarque-Bera

df

Table 1
Prob.

1
2
3
4

2.695135
3.926074
1.541796
3.799144

2
2
2
2

0.2599
0.1404
0.4626
0.1496

Joint

11.96215

0.1529

As indicated in table 1 above, all of

the components in the model are
significant at the 5% level of significance
and hence confirms the fact that the errors
are multivariate normal, i.e. errors are
distributed normally.
To further test the robustness of
the model tests for autocorrelation,
heteroscedasticity and normality tests were
conducted on the relevant variables. This
follows from the regular assumption of
unbiased and efficient estimators.

24

The variable LRER was found to be second

difference stationary, i.e. integrated of order I (2).

86

Table 2
VAR Residual Serial Correlation LM Tests
Null Hypothesis: no serial correlation at lag order
h
Date: 04/20/11 Time: 11:29
Sample: 1970 2008
Included observations: 38
Lags

LM-Stat

Prob

1
2

20.90239
15.93036

0.1823
0.4578

Cointegration Analysis
The first step in route to estimating
the long and short run dynamics captured
with the cointegration-VECM framework
is that of lag optimality.

Lag optimality
Using
maximum
likelihood
method, one can get estimates of
cointegrating vectors for a number of
variables. However, the first step in
testing for cointegration was to find the
appropriate lag length.
This was
determined through the use of several tests
for lag optimality which is given in the
table 3 below:

Probs from chi-square with 16 df.

The LM test presented in table 2

above confirms that one should fail to
reject the null of serial correlation in the
residuals. In this regard the residuals are
considered to be white noise.
The test
for Heteroscedasticity is reported in
Appendix 6. The results indicate that one
should fail to reject the null of
homoscedastic error terms.

Table 3
VAR Lag Order Selection Criteria
Endogenous variables: LRM LRER LRPC LRRP
Exogenous variables: C
Date: 04/13/11 Time: 20:31
Sample: 1970 2008
Included observations: 36
Lag

LogL

LR

FPE

AIC

SC

HQ

0
1
2
3

60.53669
227.3057
241.9324
253.5365

NA
287.2133*
21.94000
14.82745

5.08e-07
1.18e-10*
1.32e-10
1.85e-10

-3.140927
-11.51698*
-11.44069
-11.19647

-2.964981
-10.63725*
-9.857168
-8.909165

-3.079517
-11.20993*
-10.88800
-10.39814

* indicates lag order selected by the criterion

LR: sequential modified LR test statistic (each test at 5% level)
FPE: Final prediction error
AIC: Akaike information criterion
SC: Schwarz information criterion
HQ: Hannan-Quinn information criterion

Preference is usually given to

optimal lag length criterion such as the
Akaike information criterion (AIC) and the
Schwarz information criterion (SIC) within
the literature however, there is no conflict

with the lag optimality proposed by the

various test shown.
This result is
confirmed with the application of the
Wald lag exclusion test presented in table 4
below.
87

VAR Lag Exclusion Wald Tests

Date: 04/19/11 Time: 10:39
Sample: 1970 2008
Included observations: 37

Table 4

Chi-squared test statistics for lag exclusion:

Numbers in [ ] are p-values
LRM

LRER

LRPC

LRRP

Joint

Lag 1

34.05300
[ 7.27e-07]

52.56201
[ 1.05e-10]

60.65334
[ 2.11e-12]

41.87205
[ 1.77e-08]

187.0311
[ 0.000000]

Lag 2

3.029399
[ 0.552918]

10.33038
[ 0.035215]

4.011987
[ 0.404386]

3.659466
[ 0.454049]

26.55909
[ 0.046652]

df

16

The Wald test is employed by

theoretically testing for a maximum of up
to 3 lags. The test indicates that the first
lag is significant and should be retained
within the model. One may therefore
proceed with estimating the number of cointegrated vectors via the Johansen
cointegration test.

cointegrated relationship among the

variables of interest.
The maximum
statistical Eigen-value where the null
hypothesis is r, relations of cointegration
against the alternative of r+1 relations of
cointegration exists, then if the probability
is greater than the critical value at the level
of 5.0% significance then it is assumed
that there is a single vector of
cointegration. Alternatively we may
examine the Max-Eigen Statistic; if at the
5.0% level the Max-Eigen Statistic is
greater than its critical value then we reject
the hypothesized null of cointegrated
equations.
The results for the Johansen
cointegration test are presented in Table 5
below.

Indentifying the structure of the VAR

The summary results of this test
suggest that, in accordance with the AIC,
the max-eigen tests indicate presence of
one cointegrating relation. The model
assumes the data follows a linear trend
with intercept. Further investigation of
this suggested version of the model
showed that there is indeed one

88

Table 5 Cointegration Test

Unrestricted Cointegration Rank Test (Maximum Eigenvalue)
Hypothesized
No. of CE(s)

Eigenvalue

Max-Eigen
Statistic

0.05
Critical Value

Prob.**

None *
At most 1
At most 2
At most 3

0.589254
0.322070
0.192156
0.120148

32.92190
14.38231
7.895296
4.736038

32.11832
25.82321
19.38704
12.51798

0.0398
0.6894
0.8307
0.6346

Max-eigenvalue test indicates 1 cointegrating eqn(s) at the 0.05 level

* denotes rejection of the hypothesis at the 0.05 level
**MacKinnon-Haug-Michelis (1999) p-values

The results of the ECM model

reported suggests that there is indeed a
valid error correction term which resides
in the real personal credit equation. This
valid representation reports a t-statistic of 2.09969 with a coefficient estimate of 0.150311 suggesting that the elasticity of
RPC to import demand is in the in elastic
range (i.e. below one), it also indicates that
the system corrects its previous period of
disequilibrium 15.0% of each year. The
speed of adjustment is therefore
considered to be relatively slow.

As illustrated above the test shows

that one rejects the null of no
cointegrating vectors and fail to reject the
null of at most one cointegrating vector.
Hence given the evidence of a
cointegrating vector and in accordance
with
the
Granger
Representation
Theorem; there should at least be one
valid error correction model (ECM).
RESULTS FROM
RELATIONSHIPS

THE

COINTEGRATION

The summary results of the

estimated ECM model are presented
below. The full details can be found at
appendix 4.

The co-integrating equation is given below

as:

LRIM = - 7.175632 LRER(-1) + 0.382348 LRPC(-1) - 16.17070 LRRP(-1)

[7.31133]
[-2.42486]
[-7.51074]

The estimated long-run elasticities

are all statistically significant and all carry
the correct signs with real exchange rates
and real relative prices negatively
correlated to import flows. The results
indicate that the real relative prices explain
more significantly the dynamics of import
flows in the long run hence a one percent
increase in real relative prices would lead
to a 16.0% increase import demands.
As it relates to real exchange rates
a one percent increase in real exchange

rate lead to a 7.1% decrease to import

flows over the long-term, likewise a one
percent increase in real relative prices lends
to a 16.0% decrease in import flows over
the long term. The test statistics indicates
that it is significant and therefore relative
value of the exchange rate policy is useful
for signalling possible adjustments to
import flows. It is prudent however, to
examine this relationship further as these
elasticities imply that imports to Barbados
are volatile, this does not necessarily
89

confer to reality. It may also, suggest that

depreciation in the real value of the dollar
and an adjustment of the terms of trade
downwards may lend to higher import
costs.
Notwithstanding
the
aforementioned the difficulty in assessing
the relationship on trade balances is
pervasive throughout the literature as little
can be done to control the effect of
exogenous changes in the real exchange
rate. In other words as Barbados have a
fixed exchange rate with the US and other
Caribbean countries it is difficult to
control, inter alia, the terms of trade
effects which other currencies will have on
the US dollar which will also affect the real
value of the Barbados dollar. This in itself
represents the shortcomings of studies
such as this.
In general however, the study
signals that import demand is relatively
elastic to real relative prices and real
exchange rate and relatively inelastic to
changes in personal credit. Unlike the
models in the previous studies, the model
incorporates the effects of real exchange
rates into the model which adds some
dynamism to the demand function which
most other models lack.
The estimated model also indicates
that the Barbadian import demand is not
homogeneous; furthermore, the dynamic
lag structure reveals to some degree that
there exists a relationship between the
three explanatory variables and their
resulting impact on quantities imported
over different time frames.

current account due to a rise in demand

for aggregate imports and thus there will
be a need to discipline fiscal expansionary
policy particularly under a fixed exchange
rate regime.
The findings also suggest that with
fixed domestic and foreign levels of
average prices a rise in the real exchange
rate makes foreign goods and services
more expensive relative to domestic
goods. This confirms the theory of
exchange rates in the long-run and its
impact on aggregate demand.
CONCLUSION
This study investigates the speed
of adjustment to import demand function
for the economy of Barbados during the
period 1970 2008. Cointegration and
error correction techniques have been
employed to assess the relationship
between real exchange rate and import
demand. The results obtained from the
Johansen procedure indicates that the
series are co-integrated and therefore
yields a valid error correction term. The
speed of adjustment to the long run
equilibrium is corrected by the real
personal credit by 15.0% each year. In
the long run, real exchange rates prove
significant in explaining the demand for
imports. This has implications for the
exchange rate policy particularly under a
fixed exchange rate regime as it suggests
that movements in real exchange rate can
signal the possibility of an unstable
economy.
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Implication of Exchange rate policy

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preceding section, it therefore suggests
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real exchange rate of the Barbadian
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increase this may have implications on the
90

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91

Appendices
Graphical Representation of the Various Series
Appendix 1

92

Appendix 2-1
Correlograms of the Various Series in Levels

93

Appendix 2-2
Correlograms of the Various Series in Levels

94

Appendix 3-1
Augmented Dickey-Fuller test for Unit root
VARIABLES
Levels
Intercept trend
LNGDP

(-3.017573)
0.1412
LRMt
0.7730
LRGDPt
0.1854
LRPt
0.2970
LRERt
0.2445
LRNIRt
0.1883
LRPCt
7.064
LRRP
0.2551
Critical value = -3.536601 at 5% level of significance

First difference
Intercept, trend

Conclusion

(-4.828597)
0.0021
0.0028
0.0388
0.0056
0.0016
0.0000
0.0164
0.0066

I(1)
I(1)
I(1)
I(1)
I(1)
1(1)
I(1)

Appendix 3-2
Phillips-Perron Unit Root Tests
VARIABLES
Levels
First difference
Intercept trend
Intercept, trend
LNGDP
0.2591
0.0038
LRMt
0.7536
0.0004
LRGDPt
0.4185
0.0077
LRPt
0.8061
0.0055
LRERt
0.8303
0.1133
LRNIRt
0.1657
0.0000
LRPCt
0.8894
0.0314
LRRP
0.8076
0.0096
Critical value = at 5% level of significance

Conclusion
I(1)
I(1)
I(1)
I(1)
I(2)
I(1)
I(1)
I(1)

Appendix 3-3
VARIABLES

KPSS Unit Root test (LM test)

Levels
First difference
Intercept trend
Intercept, trend

Conclusion

LNGDP

0.075334

0.067885

I(0)

LRMt

0.156240

0.107378

I(1)

LRGDPt

0.122994

0.076103

I(0)

LRPt

0.199115

0.158921

I(2)

LRERt
0.187031
LRNIRt
0.127103
LRPCt
0.189716
LRRP
0.192683
Critical Value at 5% = 0.1460

0.093295
0.204838
0.056072
0.136532

I(1)
I(2)
I(1)
I(1)

95

Appendix 4
Date: 04/13/11 Time: 21:21
Sample (adjusted): 1972 2008
Included observations: 37 after adjustments
Standard errors in ( ) & t-statistics in [ ]
Cointegrating Eq:

CointEq1

LRM(-1)
LRER(-1)
LRPC(-1)
LRRP(-1)
@TREND(70)
C
Error Correction:

1.000000
7.175632
-0.382348
-16.17070
-0.156532
-15.27204
D(LRM)

(0.98144)
(0.15768)
(2.15301)
(0.03011)

[ 7.31133]
[-2.42486]
[-7.51074]
[-5.19782]

D(LRER)

D(LRPC)

D(LRRP)

CointEq1

-0.085266
(0.06833)
[-1.24782]

-0.035936
(0.04951)
[-0.72584]

-0.150311
(0.07159)
[-2.09969]

0.027370
(0.02595)
[ 1.05489]

D(LRM(-1))

-0.183485
(0.19698)
[-0.93148]

-0.113592
(0.14272)
[-0.79589]

-0.573423
(0.20636)
[-2.77869]

-0.094700
(0.07479)
[-1.26615]

D(LRER(-1))

-0.305946
(0.47769)
[-0.64047]

0.355743
(0.34610)
[ 1.02785]

0.061904
(0.50044)
[ 0.12370]

-0.089906
(0.18138)
[-0.49569]

D(LRPC(-1))

0.269620
(0.16582)
[ 1.62595]

0.199073
(0.12015)
[ 1.65693]

0.451400
(0.17372)
[ 2.59842]

0.158718
(0.06296)
[ 2.52085]

D(LRRP(-1))

1.145244
(1.02391)
[ 1.11850]

0.095703
(0.74187)
[ 0.12900]

-0.023607
(1.07268)
[-0.02201]

0.609385
(0.38877)
[ 1.56745]

0.015900
(0.02243)
[ 0.70884]

-0.025419
(0.01625)
[-1.56403]

0.033324
(0.02350)
[ 1.41808]

-0.018916
(0.00852)
[-2.22096]

R-squared
Adj. R-squared
Sum sq. resids
S.E. equation
F-statistic
Log likelihood
Akaike AIC
Schwarz SC
Mean dependent
S.D. dependent

0.296529
0.183066
0.280022
0.095042
2.613437
37.84969
-1.721605
-1.460375
0.009898
0.105153

0.323310
0.214166
0.147001
0.068862
2.962241
49.77155
-2.366030
-2.104800
-0.027751
0.077681

0.378134
0.277833
0.307332
0.099569
3.769991
36.12804
-1.628542
-1.367313
0.051277
0.117167

0.294014
0.180145
0.040370
0.036087
2.582043
73.67998
-3.658377
-3.397147
-0.023256
0.039855

Determinant resid covariance (dof adj.)

Determinant resid covariance
Log likelihood
Akaike information criterion
Schwarz criterion

5.17E-11
2.55E-11
241.2726
-11.47419
-10.21158

96

Appendix 5-1
Dependent Variable: LRM
Method: Least Squares
Date: 04/17/11 Time: 01:24
Sample: 1970 2008
Included observations: 39
Variable

Coefficient

Std. Error

t-Statistic

Prob.

C
DLRGDP
DLRRP
DLRER
DLRPC
DLRNIR

2.967527
1.249651
2.372416
-0.847439
0.304980
0.027617

1.064162
0.248841
0.654527
0.404341
0.075781
0.043130

2.788604
5.021875
3.624628
-2.095855
4.024499
0.640323

0.0087
0.0000
0.0010
0.0438
0.0003
0.5264

R-squared
Adjusted R-squared
S.E. of regression
Sum squared resid
Log likelihood
F-statistic
Prob(F-statistic)

0.759016
0.722504
0.104517
0.360486
35.99674
20.78775
0.000000

Mean dependent var

S.D. dependent var
Akaike info criterion
Schwarz criterion
Hannan-Quinn criter.
Durbin-Watson stat

10.01535
0.198408
-1.538294
-1.282362
-1.446468
0.642683

Appendix 5-2
Dependent Variable: LRM
Method: Least Squares
Date: 04/20/11 Time: 03:24
Sample: 1970 2008
Included observations: 39
Variable

Coefficient

Std. Error

t-Statistic

Prob.

C
DLNGDP
DLRP
DLRER
DLRPC
DLRNIR

5.317783
0.947184
1.743115
-0.573506
0.203390
0.009874

0.739066
0.229663
0.648029
0.405555
0.085691
0.047239

7.195271
4.124240
2.689872
-1.414125
2.373524
0.209027

0.0000
0.0002
0.0111
0.1667
0.0236
0.8357

R-squared
Adjusted R-squared
S.E. of regression
Sum squared resid
Log likelihood
F-statistic
Prob(F-statistic)

0.711970
0.668329
0.114265
0.430863
32.51918
16.31427
0.000000

Mean dependent var

S.D. dependent var
Akaike info criterion
Schwarz criterion
Hannan-Quinn criter.
Durbin-Watson stat

97

10.01535
0.198408
-1.359958
-1.104026
-1.268132
0.564925

Appendix 5-3
Dependent Variable: LRM
Method: Least Squares
Date: 04/20/11 Time: 03:39
Sample: 1970 2008
Included observations: 39
Variable

Coefficient

Std. Error

t-Statistic

Prob.

C
DLNGDP
DLRRP
DLRER
DLRPC
DLRNIR

5.605035
0.938256
2.067067
-0.783897
0.227187
0.003217

0.742632
0.221177
0.684343
0.430889
0.085816
0.046244

7.547525
4.242111
3.020512
-1.819256
2.647365
0.069565

0.0000
0.0002
0.0048
0.0780
0.0123
0.9450

R-squared
Adjusted R-squared
S.E. of regression
Sum squared resid
Log likelihood
F-statistic
Prob(F-statistic)

0.724880
0.683195
0.111675
0.411550
33.41342
17.38954
0.000000

Mean dependent var

S.D. dependent var
Akaike info criterion
Schwarz criterion
Hannan-Quinn criter.
Durbin-Watson stat

10.01535
0.198408
-1.405816
-1.149884
-1.313990
0.586819

Appendix 5-4
Dependent Variable: LRM
Method: Least Squares
Date: 04/20/11 Time: 03:40
Sample: 1970 2008
Included observations: 39
Variable

Coefficient

Std. Error

t-Statistic

Prob.

C
DLRGDP
DLRP
DLRER
DLRPC
DLRNIR

2.392211
1.349639
2.277252
-0.753986
0.296683
0.028455

1.072506
0.258937
0.621109
0.375302
0.073577
0.042813

2.230486
5.212235
3.666431
-2.009014
4.032262
0.664623

0.0326
0.0000
0.0009
0.0528
0.0003
0.5109

R-squared
Adjusted R-squared
S.E. of regression
Sum squared resid
Log likelihood
F-statistic
Prob(F-statistic)

0.760598
0.724325
0.104174
0.358120
36.12513
20.96867
0.000000

Mean dependent var

S.D. dependent var
Akaike info criterion
Schwarz criterion
Hannan-Quinn criter.
Durbin-Watson stat

98

10.01535
0.198408
-1.544879
-1.288946
-1.453052
0.636296

Appendix 6
Heteroskedaticity tests
VAR Residual Heteroscedasticity Tests: No Cross Terms (only levels and squares)
Date: 04/20/11 Time: 12:26
Sample: 1970 2008
Included observations: 38

Joint test:
Chi-sq

df

Prob.

84.65703

80

0.3395

Individual components:
Dependent

R-squared

F(8,29)

Prob.

Chi-sq(8)

Prob.

res1*res1
res2*res2
res3*res3
res4*res4
res2*res1
res3*res1
res3*res2
res4*res1
res4*res2
res4*res3

0.264530
0.218103
0.308066
0.259134
0.102495
0.275262
0.097601
0.072141
0.251080
0.133314

1.303820
1.011159
1.613935
1.267919
0.413977
1.376808
0.392072
0.281844
1.215300
0.557599

0.2805
0.4494
0.1641
0.2979
0.9031
0.2478
0.9159
0.9667
0.3250
0.8032

10.05213
8.287902
11.70649
9.847074
3.894825
10.45996
3.708855
2.741363
9.541022
5.065931

0.2614
0.4059
0.1648
0.2759
0.8665
0.2342
0.8824
0.9495
0.2987
0.7505

99

IS THE RESTAURANT SECTOR WITHIN THE BARBADOS TOURISM

INDUSTRY TAKING ADVANTAGE OF THE BENEFITS ALLOCATED TO
THEM? (1982-2006)

Mr. Ricardo Norville

Assistant Chief Research and Planning
Ministry of Labour & Social Security

100

VII. IS THE RESTAURANT

SECTOR WITHIN THE BARBADOS
TOURISM INDUSTRY TAKING
ADVANTAGE OF THE BENEFITS
ALLOCATED TO THEM?
(1982-2006)

INTRODUCTION
Tourism is a broad service sector,
which requires a wide range of simple and
complex goods and services to support it.
The industry utilizes focused tourism
components, such as tour operators, travel
agencies and lodging, in addition to banks,
insurance companies, transportation, food,
culture and other technical services and
material products (machinery, equipment,
instruments), these are required to support
travel activities and tourism attractions.
Tourism, broadly defined, is regarded as
the world's largest industry and one of the
fastest growing, accounting for over onethird of the value of total world-wide trade
in services. Highly labour-intensive, it is a
major source of employment generation,
especially in remote and rural areas.
Tourism demand, both domestic and
international, is directly related to income
levels, and therefore has prospered as
global wealth has increased.
The purpose and objectives of this
study are to show if the restaurant sector,
within the Barbados Tourism Industry,
took advantage of the benefits that were
afforded to them. These benefits would
have been, the infrastructure and the
concessions that the Government of
Barbados would have created over the last
twenty-four years. This would have
affected the growth, development and
diversification of the restaurant sector,
from the 80s to the present. This study
provides a restaurant industry growth
model. What would be the significance of
such patterns of turning points to the
restaurant industry? It would lead to the
elimination or reduction of the industry
cycle risk. This should then presumably
result in an improvement in the
investment decisions of firms, thereby
improving their effective allocation of
resources. This research is beneficial in
terms of its contribution to both the
restaurant industry and the academic

By
Ricardo Norville
ABSTRACT
The objectives and intentions
within this study are to show if the
restaurant sector, within the Barbados
Tourism Industry, took advantage of the
benefits that were afforded to them. These
benefits
would
have
been,
the
infrastructure and the concessions that the
Government of Barbados would have
created over the last twenty-four years.
This would have implications for growth,
development and diversification of the
restaurant sector, from the 80s to the
present. This paper indicates that there has
been a very nurturing environment created
within the country, for the tourism
industry, which has enabled the Barbados
restaurant sector to evolve into one of the
best destinations in the Caribbean, when it
comes to a myriad of cuisines and the level
of dining. This research as will also show,
that even though there were cases where
there was no or little growth within the
economy, that this sector was able to hold
its own and still grow, with the possibility
of a cycle emerging for the industry. The
Government of Barbados should continue
on this path of development but they
should be careful of freeloaders within the
system and to look at more trade related
factors, which will lead to the restaurant
industry being more competitive in
relation to other destinations in the
Caribbean.

101

community. Benefits to the restaurant

industry will be gained from a better
understanding of the characteristics of the
cyclical fluctuations of the industry
activity. With these results, it is expected
that people in this industry can gain insight
into the nature of the industry cycle and
thus eliminate or reduce the risk in terms
of decision making over the industry
swings. This systematic industry growth
model can obviously provide a guidepost
for the restaurant business managers and
investors. The academic community,
specifically disciplines of study focusing on
hospitality and tourism, can benefit from
research that attempts to quantify time
relationships over the restaurant business
that has never been addressed in the past.
There were difficulties obtaining
the revenues (sales) and employment
information
from
the
individual
establishments, including the number of
foreign and locally owned restaurants
within the country. This information
would have allowed for an in-depth
knowledge of the Barbados Restaurant
Business Cycle, with further understanding
of the underlying effects of the restaurant
sector within the greater tourism industry
and the economy.
In this research paper, total
employment is taken from a total industry
point of view (tourism industry) and the
revenue associated or contribution to
GDP is taken for hotels and restaurants in
total. It must be understood that many
restaurants in Barbados are separate
entities but there are numerous restaurants
within hotels. This also affects the results
of this study. The effects of all packages
under the hotel also have to be taken into
account since they would be operating as
one entity; these unseen factors play a part
and will have a hand in the industry.
Within my analysis, the fluctuations of the
growth of the restaurant industry will be
measured by a series of economic
indicators, the governments intervention

will be shown within a table, thereby

allowing us to see the reaction of the
industry at various points within the period
specified. The restaurant industry will also
be shown how it reacts to the fluctuations
of the economy giving it its unique
character.
The following comparisons were
made: base years against the year the
restaurants opened (growth of the
restaurants over the years), the growth of
the economy against the growth of the
restaurants over the years indicating when
major concessions were made, watching
the development of the industry pertaining
to the cuisine and if it was affected by any
changes within the major tourist markets.
Moreover, it was also analysed where
restaurants set up within the country over
a period of time and reasons for this
(Barbados has mainly three restaurant
tourist areas West, South and East coast
areas). Also, if there are any declines
within any of the statistics indicating
inefficiencies or needs for strengthening
the tourism product.
The rest of this paper is structured
as follows: section 2 provides a brief
review of the empirical literature on the
restaurant industry. Section 3 describes the
Barbados tourism product and the
significance of the tourism industry. It also
provides a backdrop of the Restaurant
sector in Barbados. Section 4 provides the
analytical framework of the study as well
as the indicators used. Section 5 presents
the results and analysis. The final section
contains some concluding remarks.
RELATING
TO
THE
STUDIES
RESTAURANT INDUSTRY
There is limited research as it
relates to studies in this area especially
within Barbados. There is just the
gathering of basic statistics from the
restaurant sector which is amalgamated
with the hotel sector. The few studies that
have been conducted in the United States
102

have been: Wacker (1985) examined the

traditional planning problems of the
restaurant industry and explained the
restaurant
planning
procedures
implemented to solve these problems. The
planning
procedures
include:
1)
forecasting, 2) menu analysis, 3) recipe
information, 4) material requirements
planning, 5) capacity requirements
planning, and 6) using these components
to derive an effective cost plan. A wellknown New Orleans restaurant was used
to illustrate the planning method. Ordinary
least square regression was used to
estimate the aggregate daily forecast. The
procedures demonstrated allow managers
to plan for different and specific aggregate
sales for a lucid cost picture for the longerrange restaurant needs. The restaurant
owner reported that through enhanced
planning there has been a much closer
control of materials through lower
inventory spoilage and shrinkage.
Forst
(1992)
used
several
regressions and Box-Jenkins models to
forecast weekly sales at a small campus
restaurant for two years. Forecasted sales
were compared with actual sales to select
the three most promising forecasting
models. These three models were then
used to forecast sales for the first 44 weeks
of the third year, and they were then
compared against actual sales. The results
indicated that a multiple regression model
with two predictors (a dummy variable and
sales lagged one week) was the best
forecasting model considered.
Recent trends have combined to
reshape the style, delivery and definition of
fast food systems (Silverstone, 1993).
Today, the major market players are
fighting for a larger share of static or
diminishing
markets.
In
addition,
consumer attitudes relating to health and
the quality of life are causing shifts in
demand. There is evidence of a slowdown
in the pace of operations.

According to Troyer (1996), in the

food service supply chain, more than $14
billion (US market) can be realized if the
concepts of the industry's Efficient
Foodservice Response (EFR) initiative are
implemented and to effectively capture
this market - and do so profitably - the
foodservice industry must streamline its
supply chain and build a solid platform
that enables food service companies to
capitalize on this growth.
A case study conducted by Yavas
(1996) in the US, was presented showing
practical solutions to the demand
forecasting, and labor and material
management problems faced by a fastfood operator. A modified regression
model was ultimately selected. The 2-stage
model incorporated the variables of
month, day and sales. Both month and day
were specified as dummy variables. After
finalizing the forecasting model, a
framework was designed to assist the
owner-manager in coordinating labor and
materials management activities in
response to the anticipated demand.
Questions dealing with quantity, quality,
and procedures for labor and material
management were addressed by integrating
demand forecasts with labor and material
requirements.
The available studies in the
hospitality and tourism literature deal with
different methods or techniques, and focus
on different subjects. It has been indicated
that simple regression models - while easy
to interpret and inexpensive to run - tend
to have low explanatory ability and a short
usable time horizon. Also, simple industry
gravity models exhibit the same poor
explanatory ability as regression models.
Time series may yield seriously misleading
forecasts if unforeseen occurrences
happen.
COMPETITIVENESS
The process of globalisation and
trade
liberalisation
has
rendered
103

competitiveness a precondition to any

companys survival. Whereas trade
liberalisation has afforded businesses the
opportunity to gain access to new and
hitherto restricted markets, this has been
accompanied by increased competition
abroad as well as in the domestic market.
In addition, the domestic protection that
was once afforded to local enterprises in
the form of high tariffs on imported goods
has progressively declined in recent times.
While Barbados has been subject to less
onerous tariff reductions than developed
countries, this has not served to maintain
the competitive position of local
companies in the domestic market. Indeed,
trade liberalisation has had serious
implications on the ability of domestic
manufacturers to remain competitive
against the growing influx of cheaper
imported goods.
With respect to the domestic
market, Barbadian companies, for example
those involved in handicraft, are
experiencing grave difficulties in the face
of competing imported craft items from
such low cost sources as China and
Indonesia. Even in the event of the
imposition of high tariffs on these
products, they nonetheless enter the local
market having a competitive advantage
with respect to production capacity and
cost. Barbadian businesses, given high
local production costs, are therefore
unable to compete with these imported
products based on price. Consequently,
they fear that any continued decline in the
tariff applied to these products will serve
to further erode the competitiveness of
local businesses at best, or alternatively,
lead to their imminent demise.
While
local
handicraft
manufacturers may be unable to compete
with imports at the level of pricing, they
have and must continue, however, to focus
on the production of high quality niche
products. Furthermore, Barbados must
ensure that imported products conform to

high standards, which will minimise the

possibility of the local market becoming
flooded with cheap goods of low quality.
Another critical component of increasing
competitiveness is the ability of firms to
build production capacity. Many of our
local firms require technical assistance and
financial support. Local manufacturers
however, have raised concerns about the
difficulties in accessing such support, both
from private lending institutions and some
of those government agencies charged
with the task of business and export
development. This is a situation which
must be addressed with a degree of
urgency. If we are to ensure that existing
firms build production capacity with a
view to enhancing their competitiveness,
the requisite forms of technical and
financial support must be made more
readily available to them. The Government
of Barbados in an extract from its
Financial Statement Economic and
Financial Policies of Government October
25, 2003 presented by the Minister of
Finance, quote ... we recognise that

Barbados is now operating in a highly

rules based environment, which
restricts the degree of flexibility that
can be exercised at the domestic level.
In order to discharge our obligations
and act in conformity with the
guidelines, while still expanding our
agriculture sector, the strategies we
develop must include the updating of
plant and animal health legislation,
improving the infrastructure, building
national capacity to undertake risk
analysis,
BARBADOS TOURISM PRODUCT
The total vacation experience,
starts from the time the consumer steps
out of their residents before they travel to
Barbados and includes the accommodation
and transport facilities used, the activities
in which he/she participates, the services
used, the infrastructure, the level of
104

existing safety and security and the quality

of the human, social, cultural and natural
environment.
Barbados tourism product is based
on the human, natural, cultural and social
resource base of the island. While
Barbados, like most tropical island
destinations, is known because of the
primary natural attributes of its climate and
coastal
environment,
the
other
components, particularly its people and
cultural and natural heritage elements are
of critical importance. Barbados product
is diverse in quality and quantity and
includes an accommodation complement
of approximately 6,315 rooms in 2007,
scores of restaurants and other food and
beverage facilities, nature attractions
including underground caves and marine
parks, historic sites, festivals, golf courses
and a range of other activities.
The new legal and regulatory
framework and policies being developed
for tourism are designed to help facilitate
planners and operators in the industry to
incrementally improve all of their
properties, facilities and systems to sell
Barbados as a high quality destination, not
only to visit but also in which to invest.
The tourism industry is labour intensive
since it is a service industry. It comprises
several segments; the principal ones being
transportation, accommodation, food and
beverage and activities. Given the
diversification of the industry, each of
these sub-sectors has many job
opportunities and career paths. These
range from accountants and aquatic
specialists to museum guides and
marketing officers; from travel writers and
event planners to hostesses and engineers.
Many skills are required during the
construction phase of a tourism project
and immediately upon completion
additional skills are required for the
operations phase.

3.1 Significance of the Tourism

Industry
The importance of the tourism
industry to Barbados is reflected in the
contribution it makes as an important
generator of employment. It must be
noted that employment in the tourism
sector has been changed to the
employment in the accommodation and
food services sector from 2010. In 2011,
tourism in Barbados directly employed
approximately
13,200
persons,
representing about 10.2% of the country's
labour force. This contributed US $1.77
billion in revenue. This information can
also be seen in Appendix I and II.
Today tourism is one of the
driving forces behind the promotion of
cultural events and the emergence of many
indigenous cultural groups. It has certainly
helped to promote local art, song, music,
handicraft, dance, dress and culinary arts,
and provides a means of demonstrating to
the visitor the special characteristics which
distinguish
Barbados
from
other
destinations. Thus, the tourism product is
enhanced by an added cultural dimension.
Tourism stimulates an informal economic
belt, where those who possess varying
skills and creative abilities have the
opportunity to earn an income from selling
or providing services to tourists. At
present, taxi-drivers, craft and fruit
vendors, hair braiders and beach vendors
are a major feature of Barbadian tourism.
Apart from the opportunities provided in
the informal sector, there are other
business opportunities available within the
industry: operating small hotels and
guesthouses, providing entertainment,
transportation and laundry services,
establishing catering facilities where local
cuisine is prepared, are just a few
examples.
Barbados has emerged as one of
the premier Caribbean destinations with
tourism leading all other sectors of the
economy. In the past, Barbados was
105

marketed as a sun, sea and sand

destination. However, with more attention
being paid to product development, this
economy has developed an image as a safe,
hospitable destination, offering a diverse
tourism product, which focuses primarily
on its natural and cultural heritage. This
image can only be maintained with
aggressive and focused marketing, taking
into consideration the dynamic changes in
the global arena.

concessions and income tax

concessions
for
approved
tourism projects and certain
tourism entities and for other
related matters.
Provision is made under this Bill
for investors in tourism projects to benefit
from exemption of import duty, VAT and
the environmental levy, in respect of
furniture, fixtures, equipment, building
materials and supplies, including the
construction and equipping of new
restaurants or the alteration/ renovation of
an existing restaurant. A concession for
the importation of food is allowed,
provided that there is no local supply. This
would cater to special cuisines, which we
may not have a substitute commodity to
replace it with, many establishments make
international dishes with our own
indigenous products, this allows our own
agricultural industry to play its part within
the restaurant industry. The need for
quality and quantity is still a problem in
Barbados, since international standards
have to be observed and consistency is
necessary. The cost of agricultural
products is also an issue due to the high
cost of inputs. This factor affects the
competitiveness of the agricultural industry
and in turn the restaurants, since trade
liberalization has caused imports to be
cheaper than the locally grown produce.
With all these important factors the
industries have to find ways to reduce cost,
so that it keeps them attractive to the
consumers.

3.2 Restaurant Sector

The thriving hotel and restaurant
sector in Barbados is fuelled by the
countrys growing tourism industry.
Barbados is a mature Caribbean tourism
destination and is one of the leading
destinations in the southern Caribbean, for
both long stay and cruise tourism. The
tourism product in Barbados is diverse
with an abundance of casual and elegant
dining restaurants offering local cuisine,
seafood and continental cuisine. In 2003,
there were in excess of 100 casual and fine
dining restaurants registered with the
Barbados Tourism Authority (BTA). This
figure is by no means all of the restaurants
operating in Barbados, but those
represented by the BTA. Industry sources
indicate that there are approximately 152
restaurants and 66 bars (Zagat 2007 survey
says 169 bars and restaurants). There are
also very low import restrictions for
restaurant equipment in Barbados.
Restaurant equipment imported into
Barbados will be charged a 15% VAT, a
1% Environmental Levy and 20% duty for
refrigeration appliances and 5% duty for
cooking appliances. The Government of
Barbados has offered special incentives to
the tourism and hospitality sector under
the revised Tourism Development Bill,
2002 which states that its objective is to:

4. ANALYTICAL FRAMEWORK (Model

Development)
Most of the studies within this
industry are discussions and thus hard to
apply to dynamic and complex economic
trends and therefore industry's overall
trends. There is no systematic forecasting
study for the restaurant industry as a whole
and no restaurant industry business cycle

encourage the sustainable

development of the tourism
industry by providing duty free
106

study. There is therefore merit to

developing a systematic industry cycle
model as a forecasting tool and providing a
guidepost for the restaurant business
managers and investors. The principle
objective of this study is providing for
these needs. Therefore, the objective of
this study is to develop a restaurant
industry growth model that would
represent the change and magnitude of
growth in the industry, and date and
measure the cycle, (highs and lows) of the
industry cycles.
Jeong-Gil Choi (1999) in his paper
on Developing Restaurant Industry
Business Cycle Model and Analyzing
Industry Turning Point indicated the
following:
Proposition 1: It is believed that
the restaurant industry reacts in different
ways to the business cycle fluctuation of
the US economy, while manifesting a
unique cyclical character (degree and
timing of its fluctuation).
Proposition 2: It is believed that
cyclical fluctuations of the growth of the
restaurant industry can be projected by
measuring and analyzing series of
economic indicators.
The restaurant industry cycle is a
type of fluctuation found in the aggregate
business activity of the whole restaurant
industry. The aggregate business activity of
the restaurant industry is represented by
the total sales of the industry in this study.
Unfortunately, the sales information for
these restaurants was unattainable. Since
the total sales of the restaurant industry in
a given period represent the market value
of all final goods and services which are
produced in the restaurant industry in that
period, it is safely said that the aggregate
business activity of the restaurant industry
can be represented by the data of total
sales of the industry.
This study converted the nominal
data series to real data series (constant
dollars) to track the real changes in the

industry cycle. Ideally, monthly or

quarterly data for certain time periods are
required to improve the accuracy of the
analysis. Unfortunately, data on a monthly
basis for key economic variables (to permit
a comprehensive study of the economic
fluctuations in the restaurant industry) are
very limited as far as the restaurant
industry is concerned, especially data on
the restaurant industry are either not
available or, where they are available, do
not begin until quite recently. This is
especially the case within Barbados.
As Burns and Mitchell (1946) point
out at great length, data given daily,
weekly, or even monthly tend to have too
much static; in a different metaphor, they
lose the forest and show only the trees. On
the other hand, annual data leave out many
cyclical turning points and are not
sufficiently detailed (cited in Sherman,
1991). This study utilized annual data given
the unavailability of monthly data for some
of the periods under review. Thus, dating
peaks and troughs of the restaurant
industry cycle in this study may be less
accurate than dating cycles by using
monthly data. Jeong-Gil Choi (1999)
indicates within his study, that caution
needs to be exercised in assessing the
suitability for economic indicator analysis
of series available for only a relatively short
period. This is because their performance
as a leading, coincident, or lagging
indicator may vary from one cycle to
another.
4.1 The Dating of the Industry Cycle
A business cycle is usually
measured from peak to peak. According to
the U.S. Department of Commerce, for a
period of economic fluctuations to be
classified as a business cycle, it should be
at least fifteen months long with any
significant
upward
or
downward
movement in economic activity being at
least five months in duration (Karsten
1990). Therefore this study followed this
107

rule for analyzing restaurant industry

cycles.
The criteria for cycle dating
described in Burns and Mitchell's
Measuring Business Cycles remains the
cornerstone of the traditional NBER
method of determining cyclical turning
points in a time series. A specific cycle is a
set of turning points observable in a
particular series; these turns may or may
not correspond to the overall business
cycle turning point dates. Niemira and
Klein (1994) say the selection of a turn
must meet the following criteria:
* The cycle duration must be at least
15 months, as measured from either
peak to peak or trough to trough.
* If the peak or trough zone is flat,
then the latest value is selected as the
turn.
* Striking activity or other special
factors generally are ignored, if their
effect is brief and fully reversible.

According to the selection rule of a

turn presented above, the cycle duration
must be at least 15 months, as measured
from either peak to peak or trough to
trough. Since a cycle duration should be at
least 15 months, this study using annual
data series restricts the cycle inclusion to
the cycles formed within no less than two
years. In other words, the cycle duration
must be at least twenty-four months to be
considered a cycle in this study. In
addition, the duration of contraction or
expansion has to be at least 1 year (6
months in the NBER rule). Further, the
growth change for a year should be more
than the mean absolute deviation of the
restaurant growth cycle. The dates of
peaks and troughs of the restaurant growth
cycle are used as benchmark dates against
which the specific cycles of the various
candidates for inclusion in the model as
restaurant indicator series are matched.

Table 1: Peaks and Troughs 1985-2007

Peaks
Period
Troughs
Period

Years
1985
1987

1988
3
1989
2

1991
3
1992
3

1993
2
1994
2

1996
3
1997
3

1998
2
1999
2

2000
2
2001
2

2003
3
2004
3

2006
3
2007
3

Average

SD

2.625

0.518

2.5

0.535

* SD is standard Deviation.
4.2 Indicators Used in this Study
The list of indicators that are used
within my analysis are percentage
contributions of hotels and restaurants vs
GDP, that is how much money they
contribute to the gross national product,
tourist accommodation (rooms); the
number of rooms that were available and
registered at this time; tourist stay over
arrivals by country, the number of tourist
arrivals from major markets; real GDP
growth within the country from 1982 until
2004; type of restaurant, including type of
cuisine and the year they opened their
doors, employment was also used within
the tourism sector and location of

restaurant in the various parishes of

Barbados.
The practical and fundamental
limitation of this study is data availability.
Note here that some restaurants have
changed hands or the same restaurant
opening under a different name, and some
of this former information was
unattainable. To improve the accuracy of
the analysis, labour numbers within the
restaurant and their yearly gross revenue
would have been helpful. Unfortunately,
key economic variables (to permit a
comprehensive study of the economic
fluctuations in the restaurant industry) are
very limited as far as the restaurant
108

industry is concerned. Short-term data on

the restaurant industry was not available
until quite recently. No detailed data on
output was available for the restaurant
industry on less than an annual basis.
These limitations led this study to
eliminate possible variables relating to the
industry from a list of indicators which
could form an economic system. The
insufficient data also limits the study of
financial practices over the industry
growth cycle (if there are highs and lows).
The number of restaurants included in this
study is only 101 establishments, 20 more
were established before my point of
reference of 1982, although over 160
within this restaurant and bar segment
were enquired for information.
Care must be taken in applying the
results to other segments of the restaurant

industry. Another limitation of the

indicator system is that the indicators are
selected mainly in accordance with their
historical performance (noting here again
that some restaurants have changed hands
or the same restaurant opened under a
different name). Their timing patterns will
change with changes in the structure of the
economy, in consumers preferences, in
managerial decision procedures, and in the
reactions of business and government to
changing business conditions. Due to
these limitations, the results of this study
must be used together with other data and
with full awareness of the background of
business and consumer behavior and
expectations, governmental policies, and
international events.

5. EVIDENCE AND ANALYSIS

Figure 1
Tourist Arrivals Major Markets
250,000
U.S.A

Tourists

200,000

CANADA

150,000

U.K

100,000

EUROPE
C'BEAN

50,000

OTHER
0
1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004
Y e a rs

Figure 1 shows the tourist arrivals

in major markets over the years. It can be
seen that most markets in the beginning
increased but as time passed later in the
80s especially around 1988 nearly all the
markets started to decline, the only market
that did not was the Caribbean market and
Europe market which still increased to
about 1991 there were major changes

where the U.K market increased

dramatically over the formally U.S market.
In 1993, $9.0 million was allocated for
Tourism Board for European and other
markets. This was also followed with the
increase in the Caribbean market while the
US market stayed almost constant with a
slow
gradual
increase.

109

Figure 2

900
800
700
600
500
400
300
200
100
0

6.0
4.0
2.0
0.0
-2.0
-4.0

Estimates Visitor
Expenditure (US$ millions)
GDP Growth % Real
Growth

-6.0
-8.0

19
82
19
84
19
86
19
88
19
90
19
92
19
94
19
96
19
98
20
00
20
02
20
04

Dollars

Growth vs. Tourism Expenditure

Years

Figure 2 shares a comparison

between the growth of the economy (real
growth) and tourist expenditure from the
markets above and it is interesting to see
that the dips or declines in the economys

growth are similar to the reductions in

tourist expenditure over the same period.
There is a dependency on tourist foreign
expenditure for the growth of the
economy.

Figure 3
Visitor Expenditure vs. Hotel & Restaurant GDP

Dollars

1000

15

800
10

600
400

200
0

0
1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004
Years
Estimates Visitor Expenditure (US$ millions)
% Conrtribution of Hotels and Restaurants to GDP

Within Figure 3, the visitors

expenditure was plotted against the
contribution by Restaurants and Hotels
towards the GDP of the country
(Barbados). It is interesting to see a similar
same pattern with the rise and fall in
expenditure but there has been a gradual
reduction in the contributions made to the

GDP by these entities even though visitor

expenditure has continued to rise. For
example between 1988 and 1989 where
expenditure was over the US $400,000
mark and there was a contribution of
nearly 12.0% towards the GDP, but
between 1999 and 2002 the expenditure
still has increased to nearly US$700,000
110

and the contributions to GDP are at

11.0% indicating no real move in the
contributions.
It will be seen that there has been
constant decline in the contributions of
the restaurants and hotels to GDP starting
between 1994 and 1995. This also
coincides with the change in the market
share when the U.K market started to
overtake the US market and continued a
gradual increase over this market. It is only
between 2002 and 2003 when there was a
slight increase in the tourist arrivals in the
US market that the contributions start to
increase again. There has also been a
dramatic increase in the Caribbean market
where it has almost doubled in 2005 from
the low point between 1994 and 1995. Can
it be assumed that the restaurant and hotel
sector are more tied to positive effects
when the US market increases relative to
the UK market? It should be noted here
that in 1993, BDS $9.0 million was
allocated to the Tourism Board for
European and other markets as you can
see the UK market increased dramatically
after this incentive.
The employment sector (19912004) in tourism showed fluctuations
between 10,000 to 15,000 workers. Tourist
expenditure had only declined back to
1997 levels where the contribution of
GDP from the Restaurant and Hotel
sector was nearly at its highest level
recorded. Can this be attributed to
Barbados starting to have a more
diversified product and tourists are now
spreading their income on other value
added tourism products? This is a question
to be asked, but with indications of tourist
revenue constantly increasing, this could
also mean that there may be considerable
leakage within the system for example, the

cost of food has increased, also the cost of

menus.
It is very interesting to see that the
employment figures within this sector are
not really increasing (these figures are
direct labour input). There are also many
indirect jobs related to the tourism
industry from agricultural to massage
therapists, but the tourist numbers are
increasing, which relates also to the
increase in tourist expenditure and there
has been an increase in the number of new
restaurants over the years, even though
some of these have changed hands and
moved, refurbished and reopened in other
locations.
In 1986, Hotel and Restaurants
sales tax was reduced from 8.0% to 5.0%
and in 1999 a provision of duty free
concessions to restaurants, which meet
specific criteria was established by the
Barbados Tourism Authority with a
granting of Tax Credits to restaurants,
which refurbish and upgrade their
property to meet specific standards.
Restaurants can also import food with
concessions if that food is not locally
grown but served on their menu.
So with these concessions, why is
the contribution to the tax base by these
entities falling? We can look at this in two
ways; either they have had their revenue
reduced due to the reduction in the market
or they are greatly benefiting from the
concessions given, and they are becoming
more efficient. Also, included in 1999 is an
accelerated write-off of 150.0% of
expenditure incurred by hoteliers, for
training of staff by hotels and restaurants,
with the government absorbing the fees
payable for courses at the Hospitality
institute.

111

Figure 4
Establishments Opened
12

Number

10
8
6
4
2
0
1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

Years

Figure 4 shows the preliminary

results of the 101 establishments that were
opened over this time period and
compiled. It can be seen that there are
increases and declines in the number of
establishments opened with the majority
of them opening after the 1994 period. It
can also be noted there seems to be a cycle
between a period of five (5) and six (6)

years of a high or low point within the

industry. To make predictions from this
analysis without further testing would be
unwise especially with so many factors that
affect the industry. Caution should be
taken of this sample since there were 30
restaurants already opened before this
1982 period but some of the operators
were unsure of their opening year.

Figure 5
Restaurant Concentrated by Parish

Number
7
6

St Peter

St James

4
3

St Michael

CH CH

Other

0
1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

Years

Figure 5 shows the concentration

of Restaurants which were opened within
certain parishes (plotted from Appendix
III). The preferred parish is the south
coast, Christ Church (CH CH) area
followed by St. Michael which is central
and where the capital is located between

the south and west coast, the next location

is the west coast, St. James. The south
coast property values and rents are less
than the west coast; the south coast is also
a major shopping and tourist hub within
Barbados.
Therefore
this
location
preference can also be a strategic move.

112

Figure 6

GDP Growth vs. Restaurants Opened

15

06
20

04
20

02
20

00
20

98
19

96
19

94
19

92
19

90
19

88
19

86
19

19

82

-5

84

19

% G rowth

10

-10
Years
NUMBER OPENED

Barbados GDP Growth % Real Growth

The results in Figure 6 from this

sample, compare growth within the
economy to the number of opening
restaurants, there is a very similar pattern,
for as the economy fluctuates so does the
growth of the restaurant sector. Shown in
Figure 2, the two low points in growth
coincide with the slight dips (1990-1992,
2001) in the tourist expenditure, also
reflected is the number of restaurants
opened which slows down during these
periods. As the number of restaurants
open and starts to decline so does the
economy. It levels out a little more in the
year 2000 and beyond with slight

reductions but not to no activity like 1990

(period of restructuring the economy).
With this pattern continuing it looks like
there may be a slowdown in activity within
the sector again at the end of 2007 towards
the end of 2008 (speculated every 10 year
decline in the economy or global
recession). There is also a spike or activity
seen every 5 years which could be an
independent cycle relevant to the Barbados
environment. The levelling out and
increased activity in the 2000s, can be
attributed to catering to the increase of the
U.K market and the Caribbean market.

113

Figure 7

Number of Resturants

Service Catered To
25
20
Dinner

15

Lunch
10

Breakfast

5
0
1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006

Years

Before the amalgamation of the

Caribbeans major airline carriers, there
were approximately 600,000 persons
travelling within the Caribbean countries.
When there are periods of low activity or
growth the local market is what helps keep
the sectors afloat because tourism is a
seasonal affair in the Caribbean so any
tourist facility would have to include the
tastes of the local population. Within
Figure 7 from past experiences, most of
the restaurants that opened within the 80s
catered mainly to lunch and dinner

(plotted from Appendix III) but now they

have evolved and expanded to capture that
breakfast market which can be local and
tourists alike, the tourism product within
Barbados, has evolved since nature tours
and other activities happen in the earlier
hours of the day. It also must be indicated
here that in 2003 there was the granting of
concessions
under
the
Tourism
Development Act to retirement village
projects and to community groups with
dedicated cultural heritage tourism
products.

Figure 8
Other
Oriental

16
14
12
10
8
6
4
2
0

French
Italian
Seafood
Caribbean
International
Local

19
82
19
84
19
86
19
88
19
90
19
92
19
94
19
96
19
98
20
00
20
02
20
04
20
06

Number of Resturants

TYPE OF CUISINE

YEARS

Figure 8 shows the results of the

cuisine from the various restaurants

(plotted from Appendix IV), nearly all of

them now opened cater to the local,
114

Caribbean and international cuisine market

so during low periods locals can also enjoy
the familiar products and services offered.
Other on the key within the graph
represents Mexican, Greek, Mediterranean,
and few others. As highlighted, the
International, Caribbean and local cuisine
seem to be the biggest cuisines preferred.
There are also a few Oriental food
restaurants
available
showing
the
diversification of our market.

the service industries as it can be a major

constraint when government is looking to
develop policies to stimulate growth. The
marketing and sourcing of the clientele is
done through various organisations (BTA).
The infrastructure that has been set up is
available and accessible to all restaurants.
It is clear that they have taken advantage
of the buoyant economy.
At the next large growth period in
the countrys economy, it would be
interesting to see the results of the new
restaurants that would be opened in
Barbados and the cuisines they offer, as
well as if there are any other market
changes that may have an effect. We have
seen that the growth of the restaurant
sector is similar to the growth and decline
of the economy, as the economy prepares
for a decline there is a slight decline in this
value added sector, the change in the
market has caused a change in the cuisine
and frequency of meals offered. The
number of restaurants is increasing and as
highlighted the expenditure of the tourists
is increasing, this can be seen from the
increased arrivals. On the other hand,
while labour within this sector and the
contribution towards the GDP is
declining, this could be a sign of the
restaurants becoming more efficient and
realizing greater profits.
Barbados is now presently listed
within the 2007 Zagat Survey. It has giving
results of the best restaurants, bars,
attractions and golf courses. It must be
noted that this is a very volatile industry
and that many factors will affect it, but an
increasing industry and expanding sector
(restaurants) with increasing benefits
(concessions), show that there are many
inefficiencies within this system which
need to be addressed so that the sector
and the country as a whole can benefit.
The analysis of the growth cycle
provides clues to help us forecast future
direction and improve our ability to
manage. It can be applied to other types of

CONCLUSION AND RECOMMENDATIONS

As indicated from Table 1, my first
objective was to form the restaurant
industry growth model. This is a time
series representing the growth activity of
the restaurant industry. This growth is
portrayed in Figure 4. The identified and
dated peaks and troughs of the restaurant
industry cycle are also shown in Table 1.
During this period 1982-2006, the
restaurant industry demonstrated nine
cycles (peak to peak or trough to trough).
The results show that the restaurant
industry experienced high growth (boom)
every two to three years on the average.
The troughs of the growth cycles,
contrasted to the peaks of the growth
cycles, on that occasion in 1989-1990 a
low growth phase in the economy
interrupted industry business expansion
but did not terminate it.
Restaurant industry growth cycles
tend to be relatively symmetrical: the
average duration was about 2.5 years for
both expansion (L-H) and contraction
(H-L). Growth cycles show great
uniformity. The growth of the Restaurant
sector signifies that this is a promising and
upcoming industry to be associated with
and that there are many concessions to be
obtained, the importation of tax deductible
food if it is not obtained within Barbados,
the writing off of certain taxes, if you are
catering to a certain sub-segment
pertaining to heritage tourism. The lack of
information needs to be addressed within
115

business functions. An understanding of

long-wave industry business cycle would
also provide specific information as to
when to be aggressive in expanding
business operations, when to sell
businesses, and even when to enter certain
types of new businesses. Monitoring and
forecasting restaurant industry cycles
clearly gives the manager insight into
industry turning points. Moreover, a
company that quickly recognizes a change
in the phase of the industry cycle could use
either a recession or a recovery strategy to
optimize profit.

Contemporary
Hospitality
Management, 5(1), 1-3.
Troyer, C. R. (1996). Foodservice logistics:
Ripe for change. Transportation &
Distribution, 37(5), May, 106.
Wacker, J. G. (1985). Effective planning
and cost control for restaurants:
Making resource requirements
planning work. Production &
Inventory Management, 26(1),
First Quarter, 55-70.
World Tourism Organization, Seminar on
GATS Implications for Tourism,
1995, p.36.
World
Tourism
Organization,
International Tourism: A Global
Perspective, 1997, p.226.
World Tourism Organization, Tourism
Economic Report, 1998, p.87.
World Tourism Organization as found in
OECD, Tourism Policy and
International Tourism in OECD
Countries, (OCDE/GD (97)173,
Paris, 1997.
World Trade Organization, The results of
the Uruguay round of multilateral
trade negotiations. The legal texts.
World Travel and Tourism Council, Air
Transport and Freer World Trade,
Internet
version
(http://www.wttc.org/).
Yavas, U. (1996). Demand forecasting in a
service
setting.
Journal
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International
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&
Marketing Research, 21(1), Feb, 311.

BIBLIOGRAPHY
Central

Bank of Barbados, Annual

Statistics Digest 2006, 2005.
Fannie Merritt Farmer, The Boston
Cooking School Cook Book, 1896.
Forst, F. G. (1992). Forecasting restaurant
sales using multiple regression and
Box-Jenkins Analysis. Journal of
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15-19.
Information statistics BTA tourist arrivals
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Ministry of Finance, Prime Ministers
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SECOND SCHEDULE (Sections 15, 37)
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116

APPENDIX I
BARBADOS TOURISM AUTHORITY
VISITOR ARRIVALS MAJOR MARKETS
1982-2004
YEAR

U.S.A

CANADA

U.K

EUROPE

C'BEAN

OTHER

1982

75,511

59,619

51,145

21,588

81,864

14,068

1983

113,989

53,198

47,662

17,334

83,789

12,366

1984

140,202

67,307

46,274

16,820

83,999

13,050

1985

148,093

70,573

38,922

16,666

71,066

13,915

1986

166,250

60,285

47,590

19,082

61,701

14,862

1987

175,093

64,349

79,152

23,598

64,356

15,311

1988

170,773

65,622

101,231

34,404

63,410

16,045

1989

154,269

65,564

118,122

43,949

62,840

16,515

1990

143,295

57,830

94,890

57,873

62,298

15,881

1991

119,069

46,286

88,166

65,788

57,988

16,925

1992

110,685

49,999

88,759

65,518

52,831

17,680

1993

112,733

49,190

100,071

61,871

52,462

19,652

1994

109,092

52,286

123,455

68,077

51,487

21,235

1995

111,983

53,373

126,621

70,462

58,635

21,033

1996

111,731

54,928

139,588

62,418

56,752

21,666

1997

108,095

58,824

155,986

64,632

63,581

21,172

1998

106,300

59,946

186,690

65,045

70,358

24,058

1999

104,953

57,333

202,772

41,221

86,127

22,208

2000

112,153

59,957

226,787

33,988

87,424

24,387

2001

106,629

52,381

217,466

28,659

80,085

21,858

2002

123,429

46,754

192,606

25,328

89,505

20,277

2003

129,326

49,641

202,564

29,526

96,809

23,345

2004

129,675

50,025

213,945

30,030

104,754

23,073

117

APPENDIX II
YEAR

Estimates Visitor
Expenditure (US$
millions)

% Contribution of
Hotels and Restaurants
to GDP

Barbados GDP
Growth % Real
Growth

Employed Labour
Force Tourism Sector
(Thousands)

1982

251,100,000

10.2

-4.9

1983

251,600,000

9.8

0.5

1984

284,200,000

10.0

3.6

1985

309,000,000

11.7

1.1

1986

326,900,000

10.2

5.1

1987

378,700,000

10.8

2.6

1988

460,000,000

11.8

3.5

1989

527,800,000

11.9

3.6

1990

493,500,000

11.4

-3.3

1991

459,700,000

10.9

-3.9

9,500

1992

462,500,000

11.8

-7.2

9,800

1993

528,000,000

12.9

0.8

9,400

1994

597,600,000

14.0

4.6

11,100

1995

611,800,000

13.3

2.0

11,900

1996

632,900,000

13.0

3.9

14,400

1997

657,200,000

12.4

4.7

12,300

1998

703,000,000

12.3

3.7

14,000

1999

666,200,000

11.0

0.4

12,500

2000

711,300,000

11.4

2.3

14,600

2001

686,800,000

11.2

-2.6

13,900

2002

647,800,000

10.9

0.7

14,200

2003

746,900,000

11.8

2.0

14,000

2004

763,200,000

12.4

4.9

12,200

118

APPENDIX III

LOCATION
St
Peter

St
James

Year

Opened

1982

1983
1984
1985

2
3
4

1986

1987

1988
1989

3
0

1990
1991

0
3

1992
1993
1994

1
3
2

1995
1996

4
8

1997
1998

6
8

1999

2000

11

2001
2002

6
8

2003

10

2004
2005

2
4

2006
2007

6
1

TOTAL

101

St
Michael

SERVICE
Ch. Ch

Other

1
2

1
2
1

Breakfast

Lunch

Dinner

1
3

2
3
3

1
2

1
2

1
3
1

3
6

4
7

1
1

5
5

6
8

3
1
3
2
1
1
2

1
2

2
3

2
2

3
4

1
1

10

1
3

1
3

1
2

1
2

5
7

6
5

10

1
3

1
1

2
1

2
4

4
1

5
1

67

92

45

1
7

19

23

119

15

APPENDIX IV
CUISINE

Local

International

Caribbean

1
1

Seafood

Italian

French

Oriental

Other
1

1
1

1
2

2
2

1
1
1

3
1

2
1

19

1
40

47

26

120