Productive efficiency and growth policies for the Caribbean

Abstract

Productive (economic) efficiency and factors affecting it was evaluated in the Caribbean between 1983 to 1992. Results from non-parametric programming indicated that efficiency (i.e. pure technical, allocative and economic) measures were lower and more variable in Caribbean than in other Western Hemisphere countries (i.e. North America and Latin America). Tobit regression analysis indicated higher levels of private and foreign investments, productive infrastructure, credit availability, education level, and consumption of domestically produced goods had positive impacts on the efficiency measures. On the other hand, higher levels of public expenditure, income tax, and export taxes, and higher inflation rates had negative effects. These results support the current trend towards advocating more open economies (i.e. letting the free market work) and encouraging governments to confine their functions to facilitative/regulatory type roles and to undertaking tasks that are not generally undertaken by the private sector (e.g. developing infrastructure, providing education). Although, generally, the same factors were associated with efficiency in the Caribbean and Latin America, their relative impacts differed. Consequently, in order to improve efficiency in the Caribbean countries, relatively greater emphasis should be placed on encouraging foreign and private investment and developing infrastructure than would be the case in Latin American countries.