industrialization and trade policy in barbados

INDUSTRIALIZATION AND TRADE POLICY IN BARBADOSAuthor(s): Michael HowardSource: Social and Economic Studies, Vol. 40, No. 1 (MARCH 1991), pp. 63-92Published by: Sir Arthur Lewis Institute of Social and Economic Studies, University of the WestIndiesStable URL: http://www.jstor.org/stable/27864983 .

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Social and Economic Studies 40:1 (1991) ISSN: 0037-7651

INDUSTRIALIZATION AND TRADE POLICY IN BARBADOS

Michael Howard

Department of Economics

University of the West Indies Cave Hill, Barbados

Abstract

This paper examines aspects of industrialization in Barbados,

primarily to capture the behaviour of the manufacturing sector

during the 1980s. The analysis looks at local and foreign invest

ment; labour and capital intensity; import substitution and export

promotion. The main conclusions are that although foreign invest

ment was important in the 1970s, new local investment played a

more significant role in the 1980s. Secondly, although the manu

facturing sector was moderately labour intensive during the 1970s,

capital intensity seems to have increased during the 1980s. The

degree of import substitution was significant despite attempts at export promotion. Finally, the manufacturing export sector showed a high degree of geographic and commodity concentration during the first half of the 1980s.

Previous studies of the Barbados manufacturing sector by Cox ( 1982)and Downes (1985) were concerned with industrializa tion prior to 1980. The present work builds on Howard (1986, pp. 260-82) and Bourne et al. (1987), focuses on the changing behaviour of the manufacturing sector, the pattern of export trade

during the 1980s and identifies four areas of interest. First, the

paper re-assesses the hypothesis emerging from the early work of

Carrington (1971), Jefferson (1971) and others that the industrial

policy model suggested by Lewis (1950) was too heavily depen

pp. 63-92



64 SOCIAL AND ECONOMIC STUDIES

dent on foreign capital. Second, it gauges the extent of labour

intensity during the 1980s, an issue discussed by Cox and Downes and deemed highly important in the labour surplus economy. Third, the paper estimates the degree of import substitution which was an important element in trade policy. Finally, the

study looks at export promotion for the period 1977-85 focusing on the commodity and geographic concentration of manufactured

exports.

These lines of enquiry are of paramount importance for the formulation of industrial policy. An effective treatment of the above issues requires in the first place a re-statement of the theoretical rationale and existing critique of Lewis's policy model. This is followed by a brief review of the work of Cox and Downes and a description of the structure of the manufacturing sector with

respect to employment and value added. The remainder of the

paper discusses the four areas of concern. The final section presents a conclusion of the main findings and highlights some implications for the conduct of industrial policy.

INDUSTRIALIZATION BY INVITATION

"Industrialization by invitation" was an operational model of

development put forward for the Caribbean in the 1950s by Lewis (1950). The model rested on the theoretical argument that the case

for rapid industrialization was over-population on the land. Not

only was agriculture unable to absorb the excess labour supplies but technical progress was also reducing the actual numbers in

agriculture. Excessive supplies of labour were also reflected in the

hypertrophy of the tertiary sector comprising extensive petty trades and domestic service in the 1950s.

Lewis suggested that the Caribbean islands develop an export trade in manufacturing while increasing agricultural productivity. He argued that the region lacked experienced entrepreneurs skilled in export marketing. Metropolitan expertise was therefore essential to compete with existing suppliers. Further, it was assumed that the



Industrialization and Trade Policy in Barbados 65

region was short of capital, thereby strengthening the case for the

invitation of foreign capitalists. Fiscal incentives, combined with a

relatively lower real wage would entice foreign capitalists to invest

in these countries.

The chief mechanism for the expansion of this model was

the increase in the rate of growth of the capitalist surplus at a

relatively low real wage. The role of the state in this model was to cover social overheads in the field of public utilities and regu late private enterprises considered as substitutes for productive

public enterprises. Further, the weakness of the indigenous capital ist class induced the state to pursue an "open door" policy towards

foreign investment.

The Caribbean structuralist/dependency critique of the in

dustrialization model focused on the underdevelopment biases inherent in foreign investment. This argument maintained that

Lewis underestimated the importance of the MNCs which repatri ated their profits and undermined the sovereignty of the host country (Craig 1977). Another variant of this view is that the Puerto Rican Model was a form of neo-colonialism, a thesis which states

that the economic elites which comprised the Caribbean govern ments welcomed such a model because it increased cultural de

pendence on "higher" external societies (Lewis 1968).

Early empirical evaluations of industrialization in the Carib bean were advanced by various authors including Jefferson ( 1971 ),

Carrington (1971), Armstrong (1967), Chen Young (1975) and others. An aspect of this body of criticism focused on the failure of the incentive legislation to satisfy the employment and technologi cal needs of the region. Jefferson and Carrington contended that the

model encouraged capital intensive industrialization: it failed to

stimulate the use of local raw materials and the strategy was too

dependent on foreign ownership. Best (1980) also advanced the view that industrial expansion should have taken place in the

"traditional" small scale, labour intensive sector and not the "modern"

large scale and capital intensive sector.




However, the Lewis strategy of export promotion industriali zation can be regarded as path-breaking in much the same way as

the Prebisch case (1962) for industrialization in Latin America.

Both Lewis and Prebisch reinterpreted the theory of compara tive advantage. While Prebisch argued the case for protectionism of domestic industry, Lewis advanced the rationale for the promo tion of labour intensive manufactured exports in the context of

regional integration.

Lewis's model has been faulted not so much in terms of the

argument's relating to the need for export oriented industrializa

tion, but in terms of the foreign investment strategy recommended to achieve that goal. Lewis's adherence to modernization theory within the intellectual context of Caribbean societies of the 1950s led to an over-emphasis on the role of settler-type foreign in vestment. Although some degree of direct foreign capital was

necessary to finance imports and supplement domestic savings, the

problem in the Caribbean became one of over-reliance on foreign

capital. But the post-colonial policy-makers should shoulder some

of the blame because the model in its initial stages placed too much emphasis on import-substitution which did not generate the

dynamic to reduce the dependence on foreign investment. Policy makers also failed to harness, as a matter of urgency, local mana

gerial skill and entrepr?neurship. The slow development of

the indigenous industrialist class perpetuated the dependence on

foreign capital.

REVIEW OF PREVIOUS STUDIES This section briefly reviews two previous studies on the behaviour

of the manufacturing sector in Barbados prior to 1980. Cox (1982) employs a historical descriptive methodology to analyse manufac

turing behaviour. Cox's analysis gives a detailed treatment of the

various manufacturing enterprises by their tax incentive status. He

ranks each industry in terms of its contribution to value added, em

ployment and exports. Wearing apparel was r?nked first in terms of




employment and second in terms of value added while food

manufacturing was ranked first in terms of value added.

His analysis of the growth of industrial output showed that real manufacturing output grew at a rate of 2.1 per cent per annum

between 1946 and 1980 compared with 2.6 per cent for real economy-wide GDP. Cox's other conclusions were that employ ment gains in manufacturing were small and he attributed this to a

low and declining "elasticity of employment" with respect to

output. This elasticity was below unity for the period 1946-60; 1.3 for the period 1960-66 and 0/75 for the period 1971-79.

The Cox study gives a detailed treatment of the incentive

legislation, the distribution of employment by sex, the growth of manufacturing earnings and th? analysis of manufacturing exports. Cox used the incremental capital output ratio (ICOR) to measure

capital intensity but his analysis in this area appeared unsatisfac

tory. The ICOR is subject to substantial criticisms not discussed in

Cox's analysis (Bhalla 1985, p. 32). Cox's conclusions were that the labour participation rate in the manufacturing sector rose more

slowly than the national average. Secondly, the manufacturing sector's "major contribution to the Barbadian economy has been with respect to exports of goods" (1982, p. 78).

The Downes' study had four specific objectives. First, he examined the relationship between the small size ?f a developing country and the nature of its industrial development. Second, he

employs statistical techniques, particularly components analysis (Downes 1985, Chap. 2.3.1), to determine the relative impact of

import substitution and exports on the growth of manufacturing output and the relation between output and employment growth.

Components analysis is used to specify the "sources" of output

growth and the interaction between these "sources." Input-output

analysis is also employed to capture the inter-industry effects of the

"sources." The third objective is to test a number of hypotheses

relating to industrial output and employment. Finally, he presents an evaluation of the Barbados government's industrial strategy.




It is not possible to present all of Downes' conclusions in this paper. Some of the most important are noted here. The results of

components analysis showed that in the early period of industrial development in Barbados (1957-70) domestic demand expansion was the main "source" of output growth. In the later stage (1970-78),

import substitution became the main "source" of growth. Export

expansion increased its relative importance as a "source" of growth over the two periods. Downes also showed that export expansion was a relatively more important "source" of growth in those

industrial branches in which foreign investment and scale econo

mies were relatively more important. Further, utilizing the ratio of

value added to labour (V/L), Downes found that labour-intensive,

export oriented industries made the greatest contribution to em

ployment growth in the 1970-80 period. The evidence seemed to

suggest that productivity growth had a negative impact on absolute

employment growth. Medium and large scale establishments were

the main contributors to output and export expansion.

Both Cox and Downes studies provide insight into the indus trial process in Barbados. This present paper sheds additional light on some of the issues explored previously in the context of the

Barbadian economy.

STRUCTURE OF THE MANUFACTURING SECTOR This sector describes the changing structure of the manufacturing sector up to 1985 with respect to its contribution to employment and value added. An examination of the structure of employment (Table 1) shows that wearing apparel employs the largest number of people. This industry was followed by food manufacturing in the 1970s and machinery and equipment in the 1980s. The employ

ment contribution of wearing apparel has fallen from around 33.8

percent in 1977 to 20.6 percent in 1985. Machinery and equipment increased its contribution to employment from 12.2 per cent in

1977 to 18.1 per cent in 1985. The reasons for those movements are

explained by the external demand factors influencing manufactur

ing output.



TABLE 1. EMPLOYMENT IN MANUFACTURING (Selected Years)

Industry

1970

1975

1977

1980

1983

1985

Food

Beverages and Tobacco

Wearing Apparel

Furniture and Fixtures Printing and Publishing

Chemicals

Non-Metallic Mineral Products

Fabricated Metal Products Machinery and Equipment Other Manufacturing

1,191

711

1,774

385 462 191 415 283 806 849

1,306

744

2,936

321 515 409 283 449

1,001

303

1,498 825

3,171

470 547 460 468 462

1,140

329

1,220

602

1,694

232 496 485 451 462

1,538

441

1,650

737 3,314

368 706 719 297 991

2,618

52

1,655 804

1,801 426 744 591 336 645

1,576

147

TOTAL

7,067

8,267

9,370

7,621 11,452

8,725

Source: Barbados Statistical Service: Surveys of Industrial Establishments 1970-85.




Table 2 shows new jobs created and initial capital costs. The

table reports relatively high capital costs per job for 1976,1977 and 1983. The issue of high capital costs per job has been discussed for Jamaica by Jefferson (1971) and for Barbados by Cox (1982). Cox estimates that the average cost per job for the period 1971 to 1977 was $33.0 thousand. Jefferson interprets high cost per job as an

indication of high capital intensity (1971, p. 144). My interpreta tion of the analysis is that the initial cost per job concept is not a true capital/labour ratio. Capital expenditure is a flow concept which

varies from year to year and gives no indication of the size or

heterogeneity of the capital stock either by sector or sub-sector.

One should exercise extreme caution in interpreting the initial cost

per job concept as an operational measure of capital intensity .

Table 3 reports the contribution of each sub-sector to value

added. Between 1970 and 1975, food, beverages and tobacco

together were the major contributors. In the 1980s though these

sectors continued to contribute significantly, the machinery and

equipment sector which comprises electronics components was the

main contributor in 1983.

The most important point for analysis, however, is that the rate of growth of employment fell behind the rate of growth of

value added (V) (Table 4). This tendency in developing countries has been documented by Baer and Herve (1966). These authors

sought to explain the phenomenon by increased levels of labour

productivity, high capital industry or both. Data on value added per head (V/L) and gross output per head (Q/L) in Table 4 show average annual increases in labour productivity. For example, the

Q/L ratio rose at an average annual rate of 37.1 per cent in the

period 1980-85. These factors may have been significant in ex

plaining the low labour absorption rate in the Barbadian manu

facturing industry.

CAPITAL AND LABOUR INTENSITY A well known argument in the literature on industrialization in the

Caribbean and other developing countries is that liberal tax incen



TABLE 2. INITIAL CAPITAL INVESTED PER JOB IN MANUFACTURING

1970 1971 1972 1976 1977 1978 1983

New Industries* 11 10 7 10 8 12 18

NewJobs 460 383 362 443 232 307 334

Initial Capital ($m) Investment 0.9 2.9 1.4 9.7 15.1 3.1 12.4

Capital Per Job ($thousand) 1.9 7.6 3.9 21.9 65.1 10.1 37.1

Source: Barbados Government Economic Surveys 1970-1980

Barbados Industrial Development Corporation Annual Report 1983-84

Note: *Refers to IDC assisted industries starting operations.



TABLE 3. PER CENT DISTRIBUTION OF VALUE ADDED IN MANUFACTURING (Selected Years) ?

-,-,- ^

Industry 1970 1975 1977 1980 1983 1985 ^

_ b

Food 20.7 12.5 14.1 20.2 13.4 25.3 ?

Beverages and Tobacco 17.7 21.8 16.9 12.3 9.0 13.8 ?

Wearing Apparel 12.7 14.8 23.3 11.5 11.1 7.9 |

Furniture and

Fixtures

4.4 2.9 4.0 2.2 1.8 1.8 ^ Printing and Publishing 10.0 7.3 8.1 7.1 6.8 9.2

Chemicals 3.3 9.0 8.8 15.9 9.7 7.5 ^

Non-Metallic Mineral

Products

6.6 2.7 4.4 5.9 2.2 4.2 Fabricated Metal

Products

3.7 13.8 5.4 6.5 13.2 5.4

Machinery and Equipment 7.9 12.0 10.7 13.9 32.0 22.3 Other Manufacturing 13.0 2.2 4.3 4.5 0.2 2.4

TOTAL 100.0 100.0 100.0 100.0 100.0 100.0

Source: Same as Table 1.




TABLE 4. GROWTH OF OUTPUT AND EMPLOYMENT

1970-75 1975-80 1980-85 1970-85 (%) (%) (%) (%)

Growth of Value Added (V) 16.3 9.9 15.3 16.0

Growth of Employment (L) 3.4 2.5 -1.7 2.4

Growth of V/L 13.6 7.6 15.7 13.8

Output per Head (Q/L) 17.7 ? 37.1 ?


Note: Annual average growth rates were used.

tives to foreign investors cheapen the cost of capital thereby leading to high levels of capital intensity in the manufacturing industry. This argument supported by some Caribbean economists in the 1960s has not been tested extensively in the Caribbean context. A number of measures have been used to estimate capital and labour intensities in industry. My discussion of these measures

follow Lary (1968) and Bhalla (1985). The argument examines theoretically the usefulness of four such measures: value added per

employee (V/L); the share of wages in value added (W/V); the capital coeffficient (K/V) and the capital labour ratio (K/L). The empirical analysis attempts to determine the usefulness of the V/L and W/V ratios in the measurement of labour intensity in Barbados.

Lary has employed the V/L ratio as an index of labour intensity. His argument is that the higher the V/L ratio the more

capital intensive the industry; the lower the ratio the greater the degree of labour intensity. Lary's contention is that the use of this measure by-passes the difficulty of measuring physical capital. Bhalla has outlined the limitations of the usefulness of V/L as an

index. The argument is that product market imperfections such as

monopoly and high pricing policies of various firms will give rise to V/L differentials not attributable to differences in technical



74 SOCIA L AND ECONOMIC STUDIES

requirements of factor inputs. Technological differences, as well as

inventory changes, depreciation charges and profit rates will also cause distortions in the V/L ratio. Differences in the nature of

employment between firms (part-time or seasonal employment etc.) will distort the comparability of V/L ratios.

Labour-market imperfections also affect the W/V ratio, a

measure used by Diaz Alejandro (1965). Trade union pushfulness and wage legislation distort factor prices and the share of wages in value added. In industries dominated by foreign enterprises, a high wages bill for expatriate executives may also give an upward bias

to the W/V ratio. It does not always follow that a high W/V ratio is a good guide to the degree of labour intensity.

According to Bhalla, the K/V ratio raises problems of

measuring the capital stock. Non-technological factors will also

influence the denominator and numerator. The K/L ratio suffers

from similar limitations such as inter-industry differences in

capital utilisation and the heterogeneity of capital and labour. The K/L ratio is also limited by the bias of technical change and rela tive factor prices. The difficulty of finding data on the capital stock by industrial sub-sector precluded the use of this measure

for Barbados.

I also noted Baer's ( 1966) use of installed power capacity and per capita electricity consumption by industry groups as indicators of capital intensity. His two measures equate capital intensity with

energy utilization. One drawback is that certain types of capital

equipment might be more energy efficient while having higher nominal costs. However, I was unable to obtain these data either by sector or sub-sector.

Nonetheless, bearing the above limitations in mind, and

extending Howard (1986, p. 278), the paper examined annual average W/V and V/L ratios for the period 1970-85 and 1980-85 (Table 5)* The data on wages included wages paid to production

workers as well as workers not directly involved in production. It

would have been preferable to use only wages paid to production workers, but we were unable to obtain such data.



TABLE 5. MEASURES OF LABOUR INTENSITY (Annual Averages)

W/V (%) V/L ($) V/L ($) (1970-85) Rank

(1970-85) Rank (1980-85) Rank

Food 65.6 (4) 11,293 (7) 23,893 (8)

Beverages and Tobacco 46.6 (9) 17,577 (9) 30,463 (9)

Wearing Apparel 79.1 (2) 4,656 (1) 8,693 (2)

Furniture and Fixtures 83.1 (1) 6,423 (2) 7,193 (1) Printing and Publishing 61.5 (5) 11,937 (8) 22,473 (6)

Chemicals 45.8 (10) 18,207 (10) 36,759 (10)

Non-Metallic Mineral Products 69.3 (3) 10,060 (4) 21,524 (5)

Fabricated Metal Products 56.9 (6) 10,138 (5) 17,086 (4) Machinery and Equipment 51.5 (8) 10,718 (6) 23,659 (7)

Other Manufacturing 52.4 (7) 7,510 (3) 11,096 (3) Sector Average

57.2 10,255 20,990





The W/V ratio shows that chemicals and beverages can be

ranked highest in terms of capital intensity. At the other end of the spectrum furniture and wearing apparel can be ranked first and

second, respectively, in terms of labour intensity using the index. The sub-sectors fabricated metal products, machinery and equip ment fall within an intermediate range below the industry average and all we can say is that these industries are less labour intensive

(or more capital intensive) than clothing, wood and food products.

The V/L ratio for the period 1970-85 showed the same results for chemicals and beverages and a slightly different result for wearing apparel and furniture. Wearing apparel is ranked first as

the most labour intensive industry when the V/L ratio is used. Other

manufacturing is ranked third. The problem of classification again concerns the sub-sectors non-metallic minerals, fabricated metals

and machinery and equipment which fall within the intermediate

range. Following Lary I regard these industries as "marginally labour-intensive" since their V/L ratios are near the overall sector

average. The rankings for food, printing and publishing fall consid

erably when the V/L ratio is used.

Given the sharp rise of 37.1 per cent in labour productivity between 1980 and 1985,1 looked at the V/L ratio during this period to see if productivity growth was merely a result of higher levels of

capital intensity. The analysis shows a few shifts in the rankings with food and machinery and equipment ranking higher in terms of capital intensity. These industries showed sharp increases in value

added. I argue, however, that the 15.3 per cent growth in value

added together with an average annual fall of 1.7 per cent in

employment imply that there was an overall increase in capital

intensity in the manufacturing sector as a whole being 1980 and

1985. Our result for this period confirms an earlier period trend

observed by Downes (1985).

LOCAL AND FOREIGN CAPITAL

Foreign capital was a significant proportion of initial capital in vested in manufacturing in some years in the 1970s (Table 6).




Much of this investment went to "off-shore" industries such as

electronics and plastics. Balance of payments data reported by Howard (1986) and Codrington (1987) show that between 1977 and 1980, foreign investment in the electronics components sub sector was about 57.5 per cent of foreign capital in manufacturing. This was followed by the chemical industry (21.7%). The data imply that, given the high concentration of foreign capital in these two sectors, local capital was highly significant in other sectors es

pecially those catering for the domestic market.

Table 6 reveals that local investment was more important in

nominal magnitudes during the 1980s. Local investment in IDC

assisted industries registered over 60 per cent as a proportion of

initial capital invested in manufacturing. There was also evidence

of joint venture participation in the early 1980s. Local capital in the 1980s was not concentrated in any one sub-sector. The principal areas of investment were wearing apparel and fabrics, foods,

chemicals, plastics and fabricated metal products. Between 1980

and 1985 local capital formation was high (over 90 per cent of total capital formation) in the food sector.

Codrington's (1987) balance of payments data also support the observation relating to the decline in foreign capital in manu

facturing. In 1977, foreign investment in manufacturing was $4.0 million or 24.2 per cent of total foreign investment in the economy.

By 1985, $3.2 million or 4.9 per cent of total foreign invest ment was in manufacturing. The fall was due to recessionary conditions in the world economy between 1980 and 1984. These conditions affected significantly foreign investment in electronics and equipment.

In closing this section, my principal argument is that the industrial policy should concentrate on incentives for the promo tion of local investment as well as joint venture participation. This

is not to say that efforts to promote foreign investment should cease. The conditions which favoured direct foreign investment in

the decades prior to 1980 are no longer present in the contemporary




period. Barbados is a relatively high wage cost producer, a factor

which reduces international competitiveness. The high degree of

world-wide competition in electronics arid garments has also cur

tailed the flow of foreign investment. The promotion of joint ventures would aid the penetration of existing overseas markets

while supplementing local capital.

TABLE 6. DISTRIBUTION OF INITIAL FOREIGN AND LOCAL INVESTMENT (1971-83)

Year

Initial

Capital Investment

($m)

Foreign Capital

($m)

Local

Capital ($m)

Foreign as Per Cent

of Total

1971 1972 1975 1977 1978 1980 1981 1982 1983

3.3

2.8

1.8

8.2

2.4

11.2

1.4

5.7

12.4

1.76

2.38

0.59

7.49

1.39

4.50

0.50

0.84

4.79

1.54

0.42

1.21

0.71

1.01

6.70

0.90

3.76

2.52

53.4

85.1

33.3

91.4

58.3

40.0

34.0

14.7

38.6

Source: Barbados Industrial Development Corporation./l/mwa/ Reports 1970-83.

Note: Joint venture investment for 1982 and 1983 was $1.1 million and

5.1 million, respectively.




IMPORT SUBSTITUTION INDUSTRIALIZATION

My third area of investigation is the measurement of the degree of

import substitution which was an operational feature of the Puerto

Rican model, made possible by high levels of effective protec tion (Whitehall 1984). In order to gauge the degree of reliance on the domestic market in the Barbadian case, we examined samples of data between 1975 and 1985 on the market destination of

industrial output.

Table 7 shows that generally, domestic sales comprise a very

high proportion of total sales for most manufaciuring sub-sectors

between 1975 and 1985. The sub-sectors which show the heaviest

reliance on the domestic market are food, beverages and tobacco, furniture and fixtures, printing and publishing, chemicals, and non

metallic mineral products. The ratio of domestic sales to total sales

for these sectors is over 90 per cent in some years. The data also

show that the wearing apparel industry as well as industries produc

ing machinery and equipment mostly in the enclave sector are

export-oriented. Close analysis also reveals that for 1985, the

domestic market orientation for all industries increased over 1984.

The reasons for this phenomenon stem from the decline in external

demand. This is examined later in the section on exports.

Now, the division of manufacturing sales between the domes

tic and export market is not enough evidence to inform us about the

degree of import substitution. We need to examine the behaviour of

the import coefficient and/or the output coefficient. The import coefficient is defined as the ratio of imports of a particular manu

facturing category to total supplies, while the output coefficient is

the ratio of domestic output to total supplies. Following Desai

(1969) and Bhagwati and Desai (1970) I employ the following measures of import substitution.

Measure I

Import substitution is said to be positive if:

M2/S2 -

M/S, < 0

where M = imports of competing goods



00 o

TABLE 7. DOMESTIC SALES AS PER CENT OF TOTAL SALES

Commodity Group

Food


Wearing Apparel

Furniture and Fixtures Printing and Publishing

Chemicals

Non-Metallic Mineral Products

Other Metal Products Machinery and Equipment

Other Manufactures All Manufactures

1975

1980

86 82 32 93 90 86 95 96 42 5

75

73 90 22 94 96 86 98 58 26 3

74

1983 93 90 49 75 89 14 87 64 6

43 52

1984 94 88 24 73 94 86 82 67 8

50 63

1985 95 90 41 93 94 89 95 81 22 80 81

Co O I ! Co

Source: Barbados Statistical Service Surveys of Industrial Establishments: 1975,1980, 1983, 1984 and 1985.




Q = domestic production S =

Q + M = total supplies.

M, and Sj are imports and total supplies respectively in the first period, and M2 and S2 are imports and total supplies in the second period.

Measure 2

In this measure, the magnitude of import-substitution is

expressed as a proportion, that is, there is import substitution if:

(M^-M/S^/M/S^O Measure 3

This measure is given by: (QJS2 ?

QjSj)S2 > 0

0 _

The change in the output coefficients must be positive for import substitution to take place.

The problem in applying these measures to the industry and trade data was the identification of competing imports. This was

done by careful inspection of the computer print-outs of SITC trade data and comparing these data with the relevant ISIC category. Our

estimates therefore contain some degree of error. The results are

reported in Tables 8 and 9. Table 8 gives the analysis for 1971-75

TABLE 8. IMPORT SUBSTITUTION (1971-75)

Industry Measure 1 Measure 2 Measure 3

(%) (*)

Clothing


Furniture and Fixtures

Chemicals

Machinery and Equipment

0.08 34 -37.6

0.02 10 -5.6

0.24 -54 94.0

0.41 -51 72.3

0.02 -2.2 3.0

Source: Barbados Statistical Service: Surveys of Industrial

Establishments, 1971 and 1975.




using five manufacturing categories: clothing, beverages and to

bacco, furniture and fixtures, chemicals and machinery and equip ment. These categories are clearly identifiable in the basket of

imported goods. The category "food" is too heterogeneous to allow

meaningful estimates to be made.

There was substantial import substitution in the categories furniture and fixtures and chemicals using all three measures. In the

categories clothing and beverages and tobacco there was no import substitution, because the import coefficient increased during the

period. Measure three also shows that the output coefficient for

clothing fell by 37.6 per cent. The result for clothing is explained

by the rise in competing imports from CARICOM and extra

regional markets. The import coefficient fell slightly for machinery and equipment.

The analysis for the period 1975-85 in Table 9 shows that

there was import substitution in all categories. Six categories

including paper and paper products were used. For clothing and

beverages and tobacco the fall in the import coefficient was very small, implying a very limited degree of import substitution. The

TABLE 9. IMPORT SUBSTITUTION (1975-85)

Industry Measure 1 Measure 2

(%)

Clothing Beverages and Tobacco

Furniture and Fixtures

Paper and Paper Products

Chemicals

Machinery and Equipment

-0.008 -2.5 1.9

-0.009

-0.01

-4.0

-5.0 2.0

29.5

13.2

1.9

-0.15

-0.06

-0.133

-30.0

-16.0

-15.0 57.4

Source: Barbados Statistical Service: Surveys of Industrial

Establishments, 1975 and 1985.




degree of import substitution in furniture and chemicals is substan

tially less than in the previous period. The increase in import substitution in machinery and equipment is primarily explained by the assembly of minibus bodies for the domestic market. Overall

this analysis shows that import substitution has varied between in

dustries. Import substitution is low for clothing and beverages;

positive but declining for chemicals and furniture and reasonably

high for transport equipment in the last period.

EXPORT PROMOTION INDUSTRIALIZATION The focus of this section is to examine the degree of geographic and

commodity concentration of Barbadian manufacturing exports. Our analysis leans on the methodology employed by Bourne et al.

(1987) which includes the author's contribution. The section first describes the commodity composition and market distribution

of manufactured exports. This is followed by the use of the

Gini-Hirschman coefficient to measure export concentration. The

analysis closes with a look at the CARICOM market.

Export promotion was put forward as a development strategy in the Barbados Development Plan (1969-72). Considerable em

phasis was placed on the development of the electronics enclave

sector producing electronics components for the North American

market. Clothing was also identified as a viable export commodity. Much of the export activity, especially in the enclave sector, was

based on the servicing of imports. This analysis shows that this type of export promotion led to a high degree of geographic and commodity concentration of exports. I have already shown that the

domestic market remained the principal destination for manufac

turing output.

The data in Table 10 reveal that up to 1980, sugar was the most important export but by 1985, the sugar export ratio had declined to 11.6 per cent. The period after 1980 is noted for the increase in the exports of electronics components which reached

61.2 per cent by 1985. This growth parallels the growth of imports




of electronics components. In 1985 intermediate imports of elec

tronics com-ponents were 54.7 per cent of domestic exports of the same commodity

TABLE 10. PER CENT COMPOSITION OF TOTAL BARBADIAN EXPORTS

Category 1977 1980 1984 1985

Sugar, Molasses 37.4 36.0 11.2 11.6

Rum 3.8 1.0 1.1 1.6

Other Food and Beverages 7.3 4.2 3.0 3.0

Chemicals 3.7 6.4 4.4 4.2

Electrical Components 12.1 18.8 57.5 61.2

Clothing 24.7 14.6 11.0 9.0

Other Manufactures 10.3 18.5 10.9 8.8*

AHOther 0.7 0.5 0.6 0.6

TOTAL % 100.0 100.0 100.0 100.0

Source: Annual Statistical Digest (Central Bank of Barbados). Note: *Includes Cement, a new export contributing 2.0% in 1985.

The main destinations for Barbadian manufactured exports are the United States and CARICOM. Table 11 shows that this distribution has become even more concentrated between 1977 and 1985. For instance, in 1977 Barbados exported 46 per cent of its

manufactured goods to the United States. By 1985, Puerto Rico, which is structurally part of the U.S. economy, absorbed 58.4 per cent of these exports while the U.S. total was 26.1 per cent.

Electronical components produced by large American firms are

generally shipped to Puerto Rico.

The Gini-Hirschman index of commodity concentration of manufacturing exports can be defined using Gafar's (1979) notation as:




IndexC - 100 (Ey.2)* 0<C< 1

where y. =

x/X . * the value of export of the iA commodity

and ? total manufacturing exports.

Similarly, the index of geographic concentration is defined as:

Index G = 100 ( ,2)* 0<G<1

where ? x^X

. = the value of export to the j* country partner.

TABLE 11. PERCENTAGE GEOGRAPHICAL DISTRIBUTION OF MANUFACTURED EXPORTS: BARBADOS

Country/Group 1977 1985

CARICOMMDCs 12.3 7.9

CARICOMOECS 21.7 4.4 Other CARICOM 0.5 0.3

Central America 0.1 0.2

Haiti and D.R. 0.4 0.1

Mexico 0.0 0.04

Columbia 0.0 0.0

Venezuela 0.6 0.0

Rest of L. A. 0.2 0.1

Rest of Caribbean 3.7 0.6

U.S. A. 46.3 26.1

Puerto Rico 1.6 58.4

Canada 7.6 0.3

W.Europe 4.7 1.4

Japan 0.0 0.0

Rest of World 0.3 1.2

TOTAL 100.0 100.00

Source: Barbados Statistical Service SITC categories 5-8.




These two indices were computed using 16 countries or

country groups, based on the SITC classification, as well as 10

commodity groups of manufactures. The highly skewed distribu

tion of manufactured exports has been reflected in the rise in Index

G from 0.50 in 1977 to 0.65 in 1985. This high degree of concen tration is explained by the dominance of the U.S. market. Index C

also increased from 0.44 in 1977 to 0.62 in 1985, reflecting the new

dependence on the ?xport of electronics components. Thus there is a correspondence between the rise in commodity concentration and market concentration.

STRUCTURE OF THE CARICOM MARKET

The structure of CARICOM demand for Barbados' manufactured domestic exports are shown in Tables 12 and 13. An examination

of the Trinidad and Tobago market shows that in 1977 garments comprised 32 per cent of that country's demand for Barbadian

manufactures followed by chemicals 20.6 per cent and beverages 15.5 per cent. By 1985, Trinidad and Tobago had adjusted the structure of its demand with garments constituting 15 per cent, chemicals 37.2 per cent and beverages only 4.5 per cent. The rise in the category "other miscellaneous" (25.9%) is due to cement

importation from Barbados. Demand by OECS countries is pri

marily for food preparations and chemicals. In 1985 Barbados ex

ported $4.0 million of cement to the OECS loading to a rise in OECS demand for other miscellaneous manufactured exports from

Barbados. Generally, economic difficulties in CARICOM coun

tries have led to a decline in demand for Barbadian manufactured

goods during the first half of the 1980s, particularly with respect to clothing.

Bourne et al. ( 1987) have used regression analysis to examine

the influence of prices and income on trade in manufactured goods between Trinidad and Tobago, Jamaica and Barbados. This study found that real import demand by Trinidad and Tobago for Barbadian manufactured goods between 1966 and 1982 was price




sensitive in the cases of SITC 5 and 6. The former category

comprises chemicals while the latter comprises a wide range of

manufactures including leather, textiles, paper and wood products. Demand was income sensitive in SITC 5 and 7. The latter category contains machinery and transport equipment. Summary regression results are reproduced in Table 14. The demand study, however, did not capture the importance of policy factors in the 1980s such

as the licensing policy of Trinidad and Tobago on the latter's demand for goods from Barbados.

CONCLUSIONS

My main conclusions on the operation of the Puerto Rican model

in Barbados are as follows:

( 1 ) Foreign capital has played a significant role in manufacturing in Barbados. However, local investment, particularly after 1980,

was an important factor sustaining the level of manufacturing

output. Industrial policy to stimulate joint ventures seems to be the

correct response to the falling levels of direct foreign investment in

the contemporary period.

(2) The Barbadian manufacturing sector shows a low level of

labour absorption. This is attributable to rising labour productivity, reduced external demand, and high levels of capital intensity in a few industries particularly beverages and chemicals. The analysis

points to rising levels of capital intensity in the period 1980 to 1985.

Although the wearing apparel industry is relatively labour in

tensive, labour absorption levels in this industry have been sig

nificantly affected by the fall in external demand. Since it is difficult to substitute labour for capital in the two capital using industries above, the only policy option remaining is to increase

exports in those sectors which are now presently geared for the

domestic market.

(3) Manufacturing industry in Barbados displays an unreason

ably high level of dependence on the domestic market. Home

based expansion has become even more important with the



TABLE 12. PER CENT COMMODITY COMPOSITION OF BARBADOS MANUFACTURED EXPORTS TO CARICOM: 1977

Commodity Group

Beverages

Sugar

Food

Preparation Garments

Textiles and Fabrics

Footwear Chemicals

Paper Products

Metals and Machinery Other Miscellaneous

Trinidad Guyana

Jamaica

OECS

15.5 1.4 2.3

32.0 10.7 0.1 20.6 1.5 11.9

4.2

0.1 0.01 5.3 20.3 13.4

0.0 22.2

0.2 12.0 26.5

0.3 0.0 2.8

35.1

2.0 0.0 25.8

0.3 24.3

10.8

3.1 1.3 24.2 8.4 1.3

0.08 32.4 4.9

20.8 3.4

Rest 1.0 0.0 1.0 9.5 8.4 0.0 67.0

0.05 9.3 3.8

oo 00 s I co

100.0

100.0

100.0

100.0

100.0

Source: Barbados Statistical Service: Computer Print-outs of Trade Data.



TABLE 13. PER CENT COMMODITY COMPOSITION OF BARBADOS MANUFACTURED EXPORTS TO CARICOM: 1985

Commodity Group Trinidad Guyana Jamaica OECS Rest

Beverages 4.5 0.0 10.5 10.9 54.5 Sugar 0.0 0.0 0.0 1.0 23.9

Food Preparations 6.6 59.2 14.3 16.7 7.8 Garments 15.0 0.0 4.9 0.5 4.7

Textiles and Fabrics 0.4 0.0 0.0 0.3 0.2

Footwear 0.0 0.0 0.0 0.0 0.0 Chemicals 37.2 9.2 27.3 23.4 2.9

Paper Products 0.0 15.6 0.0 1.9 0.5

Metals and Machinery 10.3 16.0 35.4 17.8 1.9

Other Miscellaneous 25.9 0.0 7.6 27.5 3.6

ALL 100.0 100.0 100.0 100.0 100.0





TABLE 14. TRINIDAD AND TOBAGO IMPORT DEMAND FOR BARBADIAN MANUFACTURES: OLS REGRESSIONS:

1966-82

Log of Dependent Variable Const. In InRGDP R2 D.W.

SITC5 -30.15 -1.37 3.34 .94 2.0

(-4.0) (-4.1) (4.2)

SITC6 3.10 -1.52 -0.04 .85 2.8

(0.1) (-1.8) (-0.0)

SITC7 -40.57 -0.94 4.65 .36 1.6

(-3.2) (-0.6) (2.6)

SITC8 16.39 -0.22 -1.2 .98 1.9

(0.9) (-0.6) (-0.6)

Source: Bourne et al. (1987, p. 67). Note: RGDP = Real GDP

= Unit import value for the SITC category divided by the consumer price index

The Y statistics are in parentheses.

shrinkage of export markets in the 1980s. Joint venture partici

pation was identified as one of the keys to the expansion of the

export market.

(4) Two fundamental characteristics of the performance of manu

facturing exports are the high levels of commodity and geographic concentration of exports. Considerable emphasis has been placed on the exports of electronics components and clothing. Export pro motion to earn foreign exchange has achieved only very limited

success, since the foreign exchange component in the electronics

industry is low because of its high import content.

(5) My analysis suggests that manufacturing can play only a limited role in the Barbadian economy. This is due to the binding




constraints we have identified such as high levels of international

competition; high initial capital costs; low levels of labour absorp tion and high levels of import dependence in export industries.

Barbados has to rely in the future on its service industries, particu

larly tourism, rather than raw material based industries. In this

regard industries like data processing and other information ser

vices offer some hope in an information age. This paper has not

focused on other factors in the industrial process, such as the role

of management, scale of plant, sales policies and finance. Of

course, these other variables will also determine the survival of

manufacturing industry in Barbados.

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