Understanding Economic Growth in the Caribbean Region

Transcription

1 IDB WORKING PAPER SERIES Nº IDB-WP-595 Understanding Economic Growth in the Caribbean Region A Conceptual and Methodological Study J. Rodrigo Fuentes Karl Melgarejo Valerie Mercer-Blackman Inter-American Development Bank Country Department Caribbean Group June 2015

2 Understanding Economic Growth in the Caribbean Region A Conceptual and Methodological Study J. Rodrigo Fuentes Karl Melgarejo Valerie Mercer-Blackman June 2015

3 Cataloging-in-Publication data provided by the Inter-American Development Bank Felipe Herrera Library Fuentes, J. Rodrigo. Understanding economic growth in the Caribbean region: a conceptual and methodological study / J. Rodrigo Fuentes, Valerie Mercer-Blackman, Karl Melgarejo. p. cm. (IDB Working Paper Series ; 595) Includes bibliographic references. 1. Economic development Caribbean Area. 2. Economic policy. I. Mercer- Blackman, Valerie. II. Melgarejo, Karl. III. Inter-American Development Bank. Country Department Caribbean. IV. Title. V. Series. IDB-WP Copyright 2015 Inter-American Development Bank. This work is licensed under a Creative Commons IGO 3.0 Attribution-NonCommercial-NoDerivatives (CC-IGO BY-NC-ND 3.0 IGO) license ( licenses/by-nc-nd/3.0/igo/legalcode) and may be reproduced with attribution to the IDB and for any noncommercial purpose, as provided below. No derivative work is allowed. Any dispute related to the use of the works of the IDB that cannot be settled amicably shall be submitted to arbitration pursuant to the UNCITRAL rules. The use of the IDB's name for any purpose other than for attribution, and the use of IDB's logo shall be subject to a separate written license agreement between the IDB and the user and is not authorized as part of this CC-IGO license. Following a peer review process, and with previous written consent by the Inter-American Development Bank (IDB), a revised version of this work may also be reproduced in any academic journal, including those indexed by the American Economic Association's EconLit, provided that the IDB is credited and that the author(s) receive no income from the publication. Therefore, the restriction to receive income from such publication shall only extend to the publication's author(s). With regard to such restriction, in case of any inconsistency between the Creative Commons IGO 3.0 Attribution-NonCommercial-NoDerivatives license and these statements, the latter shall prevail. Note that link provided above includes additional terms and conditions of the license. The opinions expressed in this publication are those of the authors and do not necessarily reflect the views of the Inter-American Development Bank, its Board of Directors, or the countries they represent. Correspondence CET@iadb.org

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14 110 The Bahamas (index 2000=100) 110 Barbados (index 2000=100) 140 Guyana (index 2000=100) year GDP percapita WEO GDP percapita PWT year GDP percapita WEO GDP percapita PWT year GDP percapita WEO GDP percapita PWT 110 Jamaica (index 2000=100) 180 Suriname (index 2000=100) 200 Trinidad and Tobago (index 2000=100) year GDP percapita WEO GDP percapita PWT year GDP percapita WEO GDP percapita PWT year GDP percapita WEO GDP percapita PWT.

15 120 The Bahamas (index 2000=100) 120 Barbados (index 2000=100) 140 Guyana (index 2000=100) year GDP percapita WDI GDP percapita PWT year GDP percapita WDI GDP percapita PWT year GDP percapita WDI GDP percapita PWT 110 Jamaica (index 2000=100) 180 Suriname (index 2000=100) 200 Trinidad and Tobago (index 2000=100) year GDP percapita WDI GDP percapita PWT year GDP percapita WDI GDP percapita PWT year GDP percapita WDI GDP percapita PWT Source: World Bank and Penn World Table 7.1.

16 1 The Bahamas 1.4 Barbados.3 Guyana year year year.45 Jamaica.5 Suriname 1 Trinidad and Tobago year year year.

17 ln y t 0 1t 2 ln y ln y t 1 3 t 2 t ε 1 /( 1 2 3)

18 ln y t 0 1t 2 ln y ln y t 1 3 t 2 t ε The Bahamas Barbados Guyana Jamaica Suriname Trinidad and Tobago Constant 2.532** 0.905** * * (0.746) (0.409) (0.694) (0.762) (0.214) (0.314) Per capita GDP in t-1 (log) 1.210** 1.144** 1.231** 1.187** 1.137** 1.548** (0.129) (0.149) (0.141) (0.150) (0.180) (0.112) Per capita GDP in t-2 (log) ** * ** * ** (0.129) (0.141) (0.144) (0.150) (0.192) (0.114) Trend (t) 0.002** * * (0.001) (0.001) (0.001) (0.001) (0.001) (0.001) Long-run growth rate 0.008** ** 0.015** ** (0.002) (0.005) (0.007) (0.004) (0.058) (0.007) Note: Significant at the 5 (**) or 10(*) percent levels. Estandar errors in parenthesis. Estimation period: The Bahamas ( ), Barbados ( ), Guyana ( ), Jamaica ( ), Suriname ( ), Trinidad and Tobago ( ).

19 Country a Dates Growth Rate b The Bahamas (1) (0.033) (0.003) Barbados (1) (0.008) (0.001) Guyana (2) (0.003) (0.003) (0.006) Jamaica (3) (0.003) (0.007) (0.001) (0.002) Suriname (1) (0.004) (0.019) Trinidad and Tobago (1) (0.004) (0.012).

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21 y it y it 1 y y it 1 it 1 ' S it ' X ' P ' S it t it i it P it it t i it t i φ π S it

22 0, 0 g 1.70 y0 1.61h 0.75FD 3.55INS 0.66 DPE 0.40OPE 0.83PD 0.35PDxDPE PDxOPE

23 Actual Projected Transitional Structural Policy Public Country Change Change Convergence Factors Environment Debt The Bahamas Barbados Guyana Jamaica Suriname Trinidad and Tobago

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26 Overall Change Attributed to: Projected Policy Public Country Change Environment Debt The Bahamas Barbados Guyana Jamaica Suriname Trinidad and Tobago Notes: Trade in Guyana and Suriname with data only for the period

27 The Bahamas Barbados Jamaica Guyana Suriname Trinidad and Tobago Source: ECLAC

28 The Bahamas Barbados Guyana Jamaica Suriname Trinidad and Tobago* United States Canada Europe Others Total of tourists 1,344, , ,910 1,951, , ,661 Population 347, , ,040 2,706, ,419 1,346,350 Tourists/population Source: Caribbean Tourism Organization; World Bank. Note: arrivals exclude daily stopovers (such as cruise passengers) * Data for Trinidad and Tobago are for 2010.

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35 .2 The Bahamas (HP filter, log).12 Barbados (HP filter, log).15 Guyana (HP filter, log) The Bahamas United States Barbados United States Guyana United States.20 Jamaica (HP filter, log).12 Suriname (HP filter, log).20 Trinidad and Tobago (HP filter, log) Jamaica United States Suriname United States Trinidad & Tobago United States Source: Author s estimation using Hodrickand Prescott filter and World Bank data.

36 I jc T 1 Count{ S jt 1, S ct 1} Count { S jt 0, S ct 0} I jc T 1 S jt S ct (1 S jt )(1 S ct ) The Bahamas Barbados Guyana Jamaica Suriname Trinidad and Tobago United States 1.00

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38 [1] [2] [3] Transitional convergence Initial real per capita GDP ** ** ** (in logs) (0.397) (0.419) (0.440) Structural factor Human capital ** ** ** (in logs) (0.461) (0.483) (0.536) Private credit * * (% of GDP, logs) (0.318) (0.338) (0.337) Institutions ** ** ** (in logs) (1.039) (1.080) (1.191) Policy environment index Domestic policy environment (0.849) (0.846) (0.993) Outward policy environment (0.176) (0.205) (0.239) Government burden Public debt (% of GDP, logs) (1.413) (1.429) (1.597) Domestic Policy Environment * * * Public Debt (0.214) (0.212) (0.244) Outward Policy Environment ** * ** Public Debt (0.032) (0.035) (0.040) Country size Dummy small country (1 if population <3 million) (0.644) (7.401) Domestic Policy Environment * Dummy Small Country (0.329) Outward Policy Environment ** Dummy Small Country (0.434) No. of observations No. of countries No. of instruments Serial correlation tests (p value)

39 AR(1) (0.000) (0.000) (0.000) AR(2) (0.728) (0.747) (0.726) Overidentifying restrictions (p value) Hansen Test (0.399) (0.348) (0.357)

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54 U 0 = E 0 t=0 β t L t ln c t c C / L K t+1 + C t = e z tk t α [(1 + γ) t L t ] 1 α + (1 δ)k t δ k ~ t c ~ t ~ k (1 ) t k t t c ~ (1 ) t c t t max {k t+1,c t } E 0 t=0 L t ln(1 + γ) t c t (1 + n)(1 + γ)k t+1 + c t = e z tk tα + (1 δ)k t

55 Z t = ρz t 1 + ε t, ε t ~N(0, σ ε 2 ) δ ln k t+1 = ln(αβ) ln(1 + γ) ln(1 + n) + ln y t y t = e t z t k t α ln y t ln y t = z t + α ln k t ln y t = A + (α + ρ) ln y t 1 αρ ln y t 2 + ε t A α(1 ρ)[ln(αβ) ln(1 + γ)] y t(1 + λ) t = y t ln y t = φ 0 + φ 1 t + φ 2 ln y t 1 + φ 3 ln y t 2 + ε t φ 0 A; φ 1 (1 + γ); φ 2 α + ρ; φ 3 αρ

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