Export-led growth: A turnaround strategy for Jamaica
Denzil A. Williams, Guest Columnist
There is no doubt that Jamaica has a growth problem. After 50 years of Independence, the economy has recorded average growth of less than one per cent. Similar small economies (e.g. Barbados, Singapore, Taiwan) facing similar internal and external market conditions since they achieved independence around the same time as that of Jamaica have seen their economies grown by five per cent per annum over the same period.
Commentators have proffered various arguments for the lack of growth of the Jamaican economy. Some argue that the structural make-up of the Jamaican economy has prevented it from achieving high levels of growth.
Others argue that reckless fiscal management has led to an inhospitable economic environment that is not supportive of growth. Still, others argue that the low level of labour productivity has impacted economic growth in a significant way.
Indeed, the Jamaica Productivity Centre, in a landmark study in 2010, showed that Jamaica's labour productivity since the 1970s has been on the decline while that of its counterpart Caribbean countries (e.g. Barbados and Trinidad and Tobago) have seen an increase accompanied by strong growth in their economies.
A closer look at the Jamaican economy shows that macro-economic instability precipitated by high fiscal deficits over the last 40 years is at the heart of the country's inability to grow its gross domestic product.
To bring some order to its fiscal imprudence and to stimulate greater confidence from investors in the local economy, Jamaica entered into an Extended Fund Facility agreement with the International Monetary Fund (IMF) to provide balance-of-payments support for its fledgling external accounts.
The signing of the agreement with the Fund imposed a number of conditions which the economy has to fulfill in order to continue to benefit from the disbursement of loans and also the sense of confidence the programme brings to the economy.
To date, the country has done a commendable job in passing the tests imposed by the Fund. However, substantial economic growth continues to elude the country. The critical issue under consideration, therefore, is for Jamaica to find a sustainable strategy to grow its economy. The answer in the context of the island's small size and its openness lies in the promulgation of an export-led growth strategy.
Growth through Exports
Keynesian economics postulates that economic growth results from an increase in aggregate demand. In the Jamaican context, any increase in aggregate demand is unlikely to come from any of the components of aggregate demand (consumption, investment, government spending) besides exports.
Under the current IMF agreement, in order to stabilise the macroeconomy, significant adjustments had to be made to government spending to bring the fiscal deficit under control. This has impacted on the disposable income which consumers have and, in turn, impacts on private investors as well.
Therefore, with these variables not showing any signs of positive upward movements, the only other policy tool at the disposal of policymakers to stimulate the local economy is exports.
Using exports to stimulate growth in the Jamaican economy is not new or novel. The high-performing Asian economies (HPAEs) - Hong Kong, Singapore, Malaysia, Taiwan, etc - have all used an export-led growth strategy to deliver high levels of economic growth.
Critically, all these economies have faced similar economic conditions to those of Jamaica. To ensure that the export growth strategy works, Jamaica will have to provide appropriate short- and medium-term financing to exporters, government policies must be flexible enough to accommodate changes in export requirements, and exporters, with the help of the Government, must be able to penetrate overseas markets effectively and efficiently.
Export-led growth strategy should be central to the growth agenda in Jamaica. The World Bank, in praising the efforts of the HPAEs which have used export-led growth to turn around their economic fortunes, suggested that the policy works best when there is stability in the macroeconomy.
With the IMF programme having performed commendably to date, and signs of stability being seen in the Jamaican economy, it is a good time to couple the stability with a push towards export-led growth. This will be the only way that Jamaica, given its liability of size, will be able to turn around its growth performance under an austerity IMF programme.
Densil A. Williams is professor of international business and executive director of the Mona School of Business and Management.