Recommendation for Export Diversification in Caribbean Countries Post-COVID-19: Insights from CDB Study

Barbados and other Caribbean countries are being advised to diversify their goods and services exports if they want to expand economic benefits in the post COVID-19 pandemic years.

That recommendation comes in a study from economists at the Barbados-based Caribbean Development Bank (CDB) who advised that “before countries can reap the benefits of diversification, policies must be created to address several considerations in the local economy as well as those that arise in the export market”.

This included creating an enabling environment for business and entrepreneurship.

The research, Business Unusual: Towards Export Diversification For Sustainable Growth And Development In Small Island Development States, was conducted by Ian Durant, director of the CDB’s economics department, and colleagues Jaron Boyce, research analyst, and Tommy Descartes, economist.

“Overall, this study finds that there are economic benefits to export diversification in the case of SIDS (small island developing states), particularly those in the Caribbean. In addition to enhancing growth, diversification provides a buffer to shocks through its portfolio effect,” the researchers stated.

“Moreover, it can promote higher efficiency in the local economy through the spillover effects provided by new industries. However, before countries can reap the benefits of diversification, policies must be created to address several considerations in the local economy as well as those that arise in the export market.”

The study sought to investigate the relationship between export diversification and growth in SIDS.

“The results show that countries with a higher degree of diversification of goods experience faster growth. On the other hand, it shows that specialising in, and exporting of services also enhance growth,” Durant, Boyce and Descartes reported.

“Such results provide evidence of the possible economic benefits of diversification in goods exports and should therefore signal to policymakers the need for policies aimed at supporting diversification.

“Importantly, the paper supports the development of a dual economic strategy based on diversifying merchandise goods, where possible, through clearly articulated industrial policies but also suggests that greater focus should also be placed on diversifying within the services sector,” they added.

The researchers said there were a number of considerations for policymakers as it related to barriers in the local economy, pointing out that “export diversification is synonymous to economic diversification”.

“Indeed, a country can only seek to export what it produces domestically. Therefore, in seeking to diversify exports, there is a need for the creation of an enabling environment for diversifying domestic production,” they suggested.

“One of the ways in which this can occur is through investment and entrepreneurship. However, for any new firms to be competitive, it is not only important that they produce products with high efficiency, but also, the services they receive that play a critical role in their production processes are also efficient as well.”

They noted that “firms that are subject to excessive regulatory procedures and higher costs for critical services will likely find it more difficult to compete domestically and even more so, internationally”.

This meant that “in order to encourage diversification, countries within the region must create a more favourable environment in which investors and entrepreneurs find it easy and safe to do business”.

Durant, Boyce and Descartes also said that one of the ways ease of doing business challenges in Barbados and other Caribbean countries could be fixed was through the digitalisation and automation of business processes.

“For example, through digitalisation, processes which may be duplicated across different government agencies can be reduced to one process since information can be more easily shared across agencies,” they stated.

In Barbados’ case, this is what the business Barbados initiative which Prime Minister and Minister of Finance Mia Amor Mottley announced in the Budget in March is intended to do.

The economic researchers said that in addition to improving business regulation, “there is also the need to encourage entrepreneurship within the region through policies and programmes aimed at building the capacity for entrepreneurs to export”.