Abstract
The motivation for this study hinges around the fact that Trinidad and Tobago (T&T) is suffering from the Dutch disease which inadvertently hinders the growth of non-energy exports. This paper examines measures that can be adopted for a small petroleum-exporting economy to dampen the effect of Dutch disease by promoting non-energy trade. This paper is novel and contributes to the literature in using panel data for the T&T case, as it investigates the effect of a devaluation of the TT dollar in order to stimulate non-energy exports (a combination of agriculture and manufacturing trade). Note that previous studies would have examined the Marshall–Lerner condition on the aggregate trade balance which is heavily influenced by energy revenues. The panel autoregressive distributed lag (ARDL) method is used for ten of T&T’s main trading partners for the period 1991 to 2019 to establish findings. The results show that the Marshall–Lerner condition does not hold for aggregate trade in the long run, as expected. However, when non-energy trade is isolated, it is found that a devaluation of the TT dollar does have a positive impact on non-energy trade and the Marshall–Lerner condition holds. Other measures are also recommended to stimulate non-energy exports in the long run.
Highlights
Trinidad and Tobago (T&T) is at the tail end of a natural gas boom where the country has seen its main source of revenue inflows diminish from the energy sector as a result of the Dutch disease which hinders the growth of non-energy exports via direct and indirect deindustrialization which serves as a motivation to undertake this study
The results indicate that the Marshall–Lerner condition does not hold for Trinidad and Tobago, Barbados and the Dominican Republic and the J-curve effect does not exist in these countries
Model (VI) reveals that the LNER has a negative and statistically significant impact in reducing LNEIM, in the short run, this becomes positive and insignificant in the long run; revealing that non-energy imports are inelastic in the long run and would not significantly be affected by devaluation of the TT dollar
Summary
Trinidad and Tobago (T&T) is at the tail end of a natural gas boom where the country has seen its main source of revenue inflows diminish from the energy sector as a result of the Dutch disease which hinders the growth of non-energy exports via direct and indirect deindustrialization which serves as a motivation to undertake this study. Previous studies would have examined the Marshall–Lerner condition based on the aggregate trade balance which is heavily influenced by energy revenues for T&T (see Boyd and Smith 2005; Straughn 2004; Wilson and McLean 2014). The main contribution of this paper was to isolate the effects of energy revenue for a petroleum-exporting economy in order to determine whether a devaluation of the currency would stimulate non-energy exports It is a novel paper with regards to T&T and can be applicable to any resource-based economy that is experiencing Dutch disease. The paper argues that other measures such as improving the ease of doing business and assessing current and potential markets provide an avenue for policy makers to stimulate non-energy exports in the long run. The paper finishes with a conclusion, which contains relevant policy recommendations to consider simultaneously when considering a devaluation of the TT dollar
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