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It is recommended that Barbados and other Caribbean countries diversify their exports of goods and services if they wish to expand their economic benefits after the COVID-19 pandemic.
The advice comes from a study by economists from the Caribbean Development Bank (CDB) in Barbados, who suggest that “before countries can reap the benefits of diversification, policies must be put in place to address the multiple problems that arise in local economies as well as in export markets”.
This includes creating an enabling environment for business and entrepreneurship.
This survey, Doing business differently: towards export diversification for sustainable growth and development in small island developing StatesThe study was conducted by Ian Durant, director of the National Development Bank’s economics department, and his colleagues research analyst Jaron Boyce and economist Tommy Descartes.
“Overall, this study finds that export diversification has economic benefits for SIDS (small island developing states), especially those in the Caribbean. In addition to boosting growth, diversification can provide a buffer against shocks through its portfolio effect,” the researchers said.
“In addition, it can improve the efficiency of local economies through spillover effects from new industries. However, before countries can benefit from diversification, policies must be put in place to address several issues that arise in local economies as well as in export markets.”
The study seeks to investigate the relationship between export diversification and growth in SIDS.
“The results suggest that countries with higher commodity diversification have faster economic growth,” Durant, Boyce and Descartes report. “On the other hand, specialization and exporting services also contribute to economic growth.”
“Such results demonstrate the economic benefits that can result from diversification of commodity exports and should therefore signal to policymakers the need to develop policies that support diversification.
They added: “Importantly, the paper supports the development of a dual economic strategy based on goods diversification where possible, through a clearly articulated industrial policy, while also suggesting a greater focus on diversification in services.”
The researchers said policymakers needed to consider many factors related to local economic barriers, noting that “export diversification is synonymous with economic diversification.”
“In fact, a country can only seek to export products that it produces domestically. Therefore, when seeking to diversify exports, it needs to create an environment that is conducive to diversifying domestic production,” they suggested.
“One way to achieve this is through investment and entrepreneurship. However, for any new company to be competitive, it is not only important that they produce their products efficiently, but also that they acquire the services that play a key role in the production process.”
They note that “companies that are subject to excessive regulatory processes and higher costs for key services may find it more difficult to compete domestically and even more difficult to compete internationally”.
This means that “to encourage diversification, countries in the region must create a more enabling environment where investors and entrepreneurs can easily and safely conduct business”.
Durant, Boyce and Descartes also said that one of the ways to address the challenges of ease of doing business in Barbados and other Caribbean countries is to digitize and automate business processes.
“For example, through digitisation, processes that may be duplicated across different government agencies can be streamlined into a single process as information can be shared more easily between agencies,” they said.
In the case of Barbados, this is exactly the purpose of the Barbados Business Initiative announced by Prime Minister and Finance Minister Mia Amor Mottley in the March budget.
In addition to improving business regulation, “there is a need to encourage entrepreneurship in the region through policies and programs aimed at enhancing entrepreneurs’ ability to export,” the economic researchers said.
Posts “Growth requires export diversification” First appeared in National News Network.
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