Kingdom of the Netherlands-Netherlands Antilles
Selected Issues and Statistical Appendix
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International Monetary Fund
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Publication Date:
13 Jun 2003
eISBN:
9781451801002
Language:
English
Keywords:
ISCR; CR; Island economy; growth rate; economy; GDP; island economies' size; per capita income economy; openness of Island economy; GDP ratio; Island dummy
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This Selected Issues paper and Statistical Appendix for Netherlands Antilles examines the economic growth in Small Island Economies. The paper finds that the Small Island Economies as a group grew faster than the rest of the world during 1960–85. The paper analyzes whether Small Island Economies respond to the same set of growth determinants as other economies, and concludes that growth is determined by the same factors and macroeconomic policy choices. The paper presents possible economic challenges that Small Island Economies might face owing to their size.

Abstract

This Selected Issues paper and Statistical Appendix for Netherlands Antilles examines the economic growth in Small Island Economies. The paper finds that the Small Island Economies as a group grew faster than the rest of the world during 1960–85. The paper analyzes whether Small Island Economies respond to the same set of growth determinants as other economies, and concludes that growth is determined by the same factors and macroeconomic policy choices. The paper presents possible economic challenges that Small Island Economies might face owing to their size.

I. Economic Growth in Small Island Economies1

1. The Netherlands Antilles have experienced a sharp decline in growth since the middle of the last decade. This prolonged underperformance has triggered a renewed interest in policies needed to boost growth. In this context, some observers have adopted a pessimistic stance, noting other small island economies’ size and lack of production diversification, and inferred causality between those characteristics and the growth performance. While this hypothesis is plausible, the experience of some islands—such as Bermuda, the Bahamas and Aruba, which are among the highest per capita income economies, as well as the strong growth performance of the Netherlands Antilles up to the 1990s—warrants a further examination of the issue, however.

2. Against this background, this chapter finds that small island economies as a group grew faster than the rest of the world during thel960-1985 period studied. Furthermore, the paper analyzes whether small island economies respond to the same set of growth determinants as other economies, and concludes that growth is determined by the same factors and macroeconomic policy choices. The paper thereby complements recent research that has found that output volatility of Caribbean countries is not any different from the rest of the world (Berezin, Salehizadeh and Santana (2002)).

3. The chapter is organized as follows: Section A presents possible economic challenges that small island economies might face due to their size; Section B reviews the relevant empirical literature; Section C tests for the differences in long-term growth determinants; and Section D offers some concluding remarks.

A. Possible Economic Challenges for Small Island Economies in Theory

4. Diseconomies of scale are the most frequently mentioned growth impediment for small island economies (Srinivasan (1986)). Several channels have been identified. First, size-related externalities could result in lower endogenous growth. If the amount of exports depends on the experience gained from sales in the domestic market, and if the volume of exports has positive externalities on productivity growth (learning-by-doing, Krugman (1980)), then small countries’ growth would be lower. Also, a small domestic market might imply an elevated cost structure compared to other economies, as it could contribute to a large number of monopolies, if companies find it difficult to break out of the increasing returns to scale range of their production technology. On the other hand, for tradable goods this effect may provide more incentives to integrate the economy into more competitive international markets, thereby benefiting from the positive effect of trade on income.2

5. Natural disasters, external economic developments, as well as limitations on independent macroeconomic policy choices may make small island economies more vulnerable. A large number of island economies are located in earthquake- or hurricane prone areas. Moreover, natural disasters may well exact a greater toll on their economies than on large countries, as the islands’ small size limits scope for domestic risk sharing. Similarly, a relatively undiversified production and dependence on export income might expose small island economies to a greater degree to external demand shocks. On the other hand, the reliance of some island economies on the relatively stable tourism industry might make their growth path less volatile.3 The usually high openness of island economies also limits the effectiveness of macroeconomic policy responses to such shocks. For example, fiscal policy will be less effective because of the attendant small multiplier effect. Finally, repeated occurrences of natural disasters might have an effect on long term growth by redirecting available investment into reconstruction efforts instead of new capital formation.

6. The establishment of high-quality public institutions might prove more difficult in small islands. Recent studies have highlighted the linkages between the quality of public institutions and economic development (Barro (1997), Esfahani (2000), Norton (2003)). With many small islands having had a colonial past, recent research by Acemoglu, Johnson and Robinson (2000) offers some important insights. They suggest that colonial past, and, in particular, the barriers to European settlement, predetermined the institutional framework, which in turn shaped economic development. Colonies that were far away from Europe and were harder to settle (due to climate, for example) did not develop institutions fostering growth. Colonial powers instead focused on establishing institutions maximizing exploitation, which has burdened economic development to this day. These findings may, however, be balanced by the observation that some institutions, specifically set up to exploit peculiarities of small island economies—like offshore financial services—have in the past helped some of them—including the Netherlands Antilles—record large rates of growth. Another characteristic of many ex colonies are special relationships with the former colonial powers. For instance, the Netherlands Antilles is part of a large labor market through free mobility to the Netherlands (and the EU). However, the effects of this arrangement on growth are ambiguous (SM/01/73). Another example are the benefits accorded through the Cotonou Agreement, which provides preferential market access to the EU.

7. Geographical endowments may also be important for growth. The remoteness of a number of small islands could burden them with high—and trade-diminishing—transport costs. On the other hand, sea transport is less expensive than other modes, and small islands are arguably better placed than remote landlocked countries. Moreover, geographic factors are by their very nature not uniformly distributed over all small islands. A case in point are climate and sandy beaches, which are essential for the development of the tourism sector.

8. The theoretical literature thus does not provide a clear cut case to assess the growth performance of small islands. While some factors such as diseconomies of scale likely impede growth, they might at least partially be overcome by appropriate polices. Moreover, other factors such as location and climate could create net beneficial effects. It is, therefore, largely an empirical task to examine the growth performance of small island economies.

B. Review of the Empirical Literature

9. There is relatively little empirical literature on the growth of small island economies. Most studies concentrate on small economies without specifically identifying islands, so that their results are not readily transferable to small island economies. Moreover, the literature that does focus on small island economies is either based on comparisons of stylized facts or an econometric approach employing “kitchen sink” regressions that are not based on theoretical models and attribute growth to an ad hoc selection of explanatory variables.4

10. Salvatore (1997) analyzes the differences in income levels and growth rates of small and large countries over the ten-year period 1985-1995 and finds that large countries, as a group, have 25 percent higher incomes than either very small or small countries, although this difference is smaller if one compares only high income countries (Table 1). Furthermore, large countries experienced higher growth rates during the decade in all but the high-income category (Table 2).5 The study, however, does not attempt to determine causal links between income levels or growth rates and country size.

Table 1.

Difference in PPP Per Capita Incomes Among Very Small, Small and Large Countries in 1995

(In units indicated)

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Source: Salvatore (1997).
Table 2.

Annual Growth of PPP Per Capita Incomes Among Very Small, Small and Large Countries between 1985 and 1995

(In units indicated)

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Source: Salvatore (1997).

11. Perkins and Syrquin (1989) give another exposition of the differences in relative growth rates between small (which they define as less than 15 million inhabitants) and very large countries (population above 50 million). During 1960-1980, large countries grew faster than small ones. The better economic performance reflected productivity growth rather than differences in either capital or labor inputs, though (Table 3). Productivity grew on average 1 percentage point per year faster in large countries than in small ones. However, productivity growth in the large countries can be attributed to more than size. Based on a geographical decomposition, the paper finds that productivity growth rates range from over 4 percent in South Asia to -1 percent in sub-Saharan Africa, providing a strong indication of the importance of factors other than size. Unfortunately, the paper does not shed any light as to what other factors beside size might affect productivity, nor does it permit to differentiate the small economies into island economies or non-island economies.

Table 3.

Sources of Growth by Country Size6

(In percent)

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Source: Perkins and Syrquin (1989)

12. Bulmer-Thomas (2001) provides stylized facts about growth in the Caribbean countries during the last century. Analyzing growth paths of 28 Caribbean countries during the 20th century, the paper finds that during 1900-1960 there has been a strong divergence. The coefficient of variation of per capita income among those countries increased from 0.57 in 1900 to 2 in 1960. From 1960 until the end of the century the coefficient narrows to a level of 1.26 in 1998, showing relative convergence in income levels in the region. The paper also notes a high correlation of GDP growth and export growth in the Caribbean economies. However, since it limits its analysis to Caribbean countries only, it is hard to extend its findings to other small island economies or ideally, to compare their performance with that of the rest of the world.

C. Empirical Analysis of Growth Determinants in Small Island Economies

13. The studies quoted above address growth of small island economies at best indirectly. Comparisons of stylized facts do not establish causal links. Moreover, these studies cannot readily be interpreted within the context of the advances in the empirical growth literature over the last 15 years, where a structural approach, which analyzes fundamental sources of long-run growth along the lines of the neoclassical Solow-Swan growth model (Barro and Sala-i-Martin (1995)), has emerged as a canonical benchmark. In this section, the paper applies this benchmark econometric approach to analyze the fundamental neoclassical growth determinants of small islands.

14. The Solow-Swan model predicts convergence, i.e., equiproportionate increases in initial GDP per capita and human capital reduce growth due to diminishing returns; the richer the country the slower the growth rate. A set of environmental and control variables determines the steady state output per effective worker. A change in any of these variables—for example, the investment rate or government consumption—changes the steady state. The model implies that in steady state only growth of technological progress affects the long-term growth rate of per capita income. Nevertheless, empirical studies suggest that most world economies are not at steady state, but rather at a convergence stage, during which environmental and control variables do affect the observed growth rate of per capita income.

15. The specific model presented here attributes growth of real per capita GDP to a set of initial conditions: initial per capita GDP, human capital (based on measures of educational attainment and health), and a set of control and environmental variables: physical capital accumulation (investment to GDP ratio); human capital accumulation (government expenditures on education to GDP ratio), quality of institutions (government consumption to GDP ratio, the parallel market premium, and political instability); trade (growth of terms of trade); and an interaction term between human capital and GDP to capture the imbalances between the human and physical capital (see the appendix for a detailed description of the variables). This is the benchmark specification used by Barro and Sala-i-Martin. The regression uses period dummies for years 1970-1974, 1975-1979 and 1980-1984 to account for oil shocks and the subsequent recovery. In addition, an island dummy is included to capture any unique growth impediments faced by small islands. Here, small island economies are defined to have a population below 10 million. This classification, although somewhat arbitrary, falls in between a range of most common classifications for small and large countries, and results in a sufficiently large sample for the statistical analysis.7 Data are scarce for very small islands.

16. The data set, developed by Sala-i-Martin,8 comprises 138 countries and covers the 1960-1985 period in five-year intervals. The objective of the analysis is to determine whether the same growth determinants found in the rest of the world also apply to small island economies. An instrumental variable technique is used. A closer examination of the data set (Table 4) reveals some distinctive characteristics of small island economies. At the end of the sample in 1985, real GDP per capita of island economies was very similar to that of the rest of the world average, but had significantly less variance, pointing to more homogeneity among the island economies. The measures of market distortions (as reflected in the parallel market premium) or political instability imply a somewhat better institutional environment in small island economies compared to the rest of the world. On average, small islands recorded a higher life expectancy as well as elevated government expenditure on education, while government consumption was lower. On the other hand, their population is on average less educated—abstracting from higher female secondary schooling—and investment is lower.

Table 4.

Sample Means of Island and Non-island Economies, 1960-1985

(Standard deviations in parenthesis)

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Source: Staff calculations on data compiled by Barro and Sala-i-Martin: http://www.columbia.edu/~xs23/data.htm

17. Over the 1960-1985 period, island economies grew on average at 2.07 percent per year, or 0.2 percentage points faster than non-island economies, putting in perspective Salvatore’s (1997) results that small economies during this period grew on average slower than large ones, and attesting to the difference between small economies and small island economies. However, Figure 1 depicts a bimodal distribution of small islands’ per capita growth rates over the sample period, with two distinct growth clusters, one below and one above the mean growth rate for the rest of the world.

A01ufig01

Distribution of Growth Rates for Island and Non-Island Economies 1/

(In Percent)

Citation: IMF Staff Country Reports 2003, 159; 10.5089/9781451801002.002.A001

1/ Average annual growth rates for the five-year periods: 1960-1964, 1965-1969, 1970-1974, 1975-1979, and 1980-1984.

18. The regression results (Table 5) indicate that after accounting for the effects of policies and environmental variables, small island economies are not unique in their growth paths. Column 1 replicates the results in Barro and Sala-i-Martin (1995). Column 2 extends the Barro and Sala-i-Martin results by including the wider sample.9 Period dummies are also introduced, which aside from improving fit increase the coefficients on male secondary education and life expectancy while at the same time lowering the effect of government investment and spending on education. The convergence of growth rates predicted by the Solow-Swan model is reflected in the negative coefficient on the initial log(GDP) variable. An interesting result is that the coefficient on female years of schooling is negative (although only secondary schooling is significant). In the relevant literature, this finding has been explained by a reference to economic backwardness. If the spread between the female and male educational attainment proxies for a country’s economic backwardness—especially through lower female attainment at higher levels of education—then, that country would be farther behind the steady state, and the convergence mechanism would call for higher growth.

Table 5.

Regression Results for Growth Rate of Real per Capita GDP

(Standard errors in parenthesis)

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Source: Staff calculations. Data compiled by Barro and Sala-i-Martin: http://www.columbia.edu/~xs23/data.htm

significant at 5 percent

significant at 1 percent

19. Turning to potential peculiarities of small islands, column 3 extends the results by including dummies for island economies. The small-island dummy variable does not have any explanatory power. Moreover, the inclusion of the island dummy variable does not change the estimated coefficients of most of the other variables. The coefficient on initial GDP implies that convergence occurs at a rate of 3.26 percent per year. This magnitude of convergence is similar to those reported in other growth studies (Mankiw, Romer, Weil (1992)), albeit somewhat higher than the original Barro and Sala-i-Martin result from their limited sample.

20. Shifting focus to the impact of policies, Table 6 presents the contributions of the center hand side variables, evaluated at their sample means, to the growth of island and non-island economies, respectively. Notwithstanding the estimated negative effect of female secondary schooling (see above), joint male and female educational attainment (adding the two contributions together) has a positive effect implying that an additional year of secondary schooling adds 0.5 percentage point to the annual GDP per capita growth rate. Government expenditure on education also has a considerable positive effect, that for small islands outweighs the drain of government consumption on growth. Moreover, the general contribution of human-capital-raising policies to growth is probably understated, as it is impossible to attribute higher life expectancy (a very important growth determinant) to underlying policies. Finally, fewer policy distortions, as revealed in the parallel-market premium, mitigates their adverse growth effects in small island economies.

Table 6.

Contribution to Growth for Island and Non-Island Economies

(In percentage points)

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Source: Staff calculations. Data compiled by Barro and Sala-i-Martin: http://www.columbia.edu/~xs23/data.htm

D. Concluding Remarks

21. A number of theoretical arguments as well as statistical evidence have been advanced in the past to suggest that there are unique impediments to growth for small island economies. Diseconomies of scale, natural disasters, poor public institutions, and small domestic markets for example, have all been quoted as potential hindrances to the development of these economies. However, these arguments are theoretically ambiguous, and so far empirically untested. Against this uncertain background, this chapter has sought to verify whether the same determinants of long-term growth apply to small island economies and other countries. To this end, the paper assessed the development characteristics of small island economies and investigated the growth determinants using well-established long-term growth models.

22. The empirical evidence implies that the growth and policy performance of small island economies is not very different from the rest of the world. They have on average similar GDP per capita, similar education standards and slightly higher life expectancy. Contrary to popular belief, small island economies experienced less political instability and economic distortions during the 1960-1985 period studied, and they have grown on average faster than the rest of the world. Most importantly, though, the paper suggests that there are no unique growth impediments for small islands, and that economic policies have on average been in line with those pursued in the rest of the world.

References

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APPENDIX I Description of the Data

Initial Per Capita GDP (log(GDP))

The variable log(GDP) is an observation of the log of real per capita GDP. It represents initial income, in line with neoclassical models suggesting faster convergence for low income countries. In the regression, log(GDP) lagged five years is used as an instrument. The use of instrumental variable technique is necessary since contemporaneous variables used here are not independent of the error terms. This instrumental procedure lessens the tendency to overestimate the convergence rate because of temporary measurement error in GDP.

Educational Attainment (male secondary years of schooling, female secondary years of schooling, male higher education years of schooling, female higher education years of schooling)

The school-attainment variables are years of schooling observed at the start of each five year period.

Life Expectancy (log(life expectancy)

The variable is defined as an average life expectancy at birth prevailing over the five years prior to the start of each period.

Public Spending on Education (G-educ./GDP).

The variable G-educ./GDP is the average value over each five-year period of the ratio of nominal government spending on education to nominal GDP. The corresponding instrument is the average value of the ratio over the preceding five years.

Investment Ratio (I/GDP).

The ratio of real gross domestic investment (private plus public) to real GDP, I/GDP, enters into the regressions as a period average. The corresponding instrument is the average value of the ratio over the preceding five years.

Government Consumption (G-cons./GDP).

The variable G-cons./GDP is the average over each five year period ratio of real government consumption to real GDP less the ratio of nominal spending on defense and non-capital expenditures on education to nominal GDP (the data do not contain deflators for spending on defense and education). The associated instrument for G-cons./GDP is the average value prevailing in the preceding five years.

Parallel-Market Premium on Foreign Exchange. (log(l+ parallel market premium)

The variable log(1 + parallel-market premium) is an average for each period. The average value of the premium over the preceding five years is used as an instrument.

Political Instability

The political-instability variable is the average over each period of revolutions per year and political assassinations per million inhabitants per year.

The Terms of Trade (growth rate, terms of trade).

The growth rate of the terms of trade is viewed as exogenous and therefore enters as its own instrument.

STATISTICAL APPENDIX

Table 1.

Netherlands Antilles: The Composition of GDP, 1992-1997

(In millions of NA f.)

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Source: Data provided by the Netherlands Antilles authorities.
Table 2.

Netherlands Antilles: Components of Aggregate Demand, 1992-1997

(In millions of NA f.)

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Source: Data provided by the Netherlands Antilles authorities.
Table 3.

Netherlands Antilles: Selected Indicators of Economic Activity, 1992-2002

(Annual percentage change)

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Source: Data provided by the Netherlands Antilles authorities.

Annual tonnage of shipping traffic in Antillean ports.

Value of completed buildings.

Number of visitors.

Table 4.

Netherlands Antilles: Basic Data on Stay-Over Tourism, 1992-20021

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Source: Bank van de Netherlandse Antillen, Quarterly Bulletin.

Foreigners staying longer than 24 hours.

Table 5.

Netherlands Antilles: Cruise Tourism, 1990-2002

(Number of passengers)

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Source: Bank van de Netherlandse Antillen, Quarterly Bulletin.
Table 6.

Netherlands Antilles: Changes in Consumer Prices, 1992-2002

(Annual percentage change; period average)

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Source: Bank van de Netherlandse Antillen.
Table 7.

Netherlands Antilles: Minimum Wages1 1996-2002

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Source: Data provided by the Netherlands Antilles authorities.

Youth minimum wages which were introduced on September 1, 1993, are lower. They are expressed as percentage of the regular minimum wages, depending on age levels: 90 percent at age 20; 85 percent at age 19; 75 percent at age 18; and 65 percent at age 16 and 17.

Table 8.

Netherlands Antilles: Employment, Unemployment, and Migration, 1990-2002

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Sources: Central Bureau of Statistics; Bank van de Nederlandse Antillen.

Net, to the Netherlands, a minus sign indicates an outflow.

Table 9.

Netherlands Antilles: Operations of the General Government, 1996-2002

(In millions of NA f., cash basis)

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Source: Data provided by the Netherlands Antilles authorities.
Table 10.

Netherlands Antilles: Operations of the Central Government, 1996-2002

(In millions of NA f., cash basis)

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Source: Data provided by the Netherlands Antilles authorities.
Table 11.

Netherlands Antilles: Operations of the Island Government of Curaçao, 1996-2002

(In millions of NA f., cash basis)

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Source: Data provided by the Netherlands Antilles authorities.
Table 12.

Netherlands Antilles: Financing of General Government, 1996-2001

(In millions of NA f., cash basis)

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Source: Data provided by the Netherlands Antilles authorities.

Correction for formalization arrears island governments with APNA/SVB through the issue of Central Government bonds.

Table 13.

Netherlands Antilles: General Government Debt, 1996-2001

(In millions of NA f., end of period)

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Source: Data provided by the Netherlands Antilles authorities.

APNA Regentesselaan, APNA FZOG and Winkel Broth.

Table 14.

Netherlands Antilles: Monetary Survey, 1992-2002

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Source: Data provided by the Netherlands Antilles authorities.

Includes gold revaluations from NA f. 67.5 million to NA f. 208.8 million in June 1995, to NA f. 189.5 million in January 1996 to NA f. 179.8 in November 1998, and to NA f. 138.9 million in December 2000.

Table 15.

Netherlands Antilles: Commercial Bank Credit to the Private Sector, 1992-2002

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Source; Data provided by the Netherlands Antilles authorities.

All mortgage borrowings have been accrued to entities on the Windward Islands.

All business borrowings have been accrued to entities on the Leeward Islands.

Table 16.

Netherlands Antilles: Interest Rates, 1992-2002

(In percent, end of period)

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Source: Data provided by the Netherlands Antilles authorities.

Publication stopped in December 2000.

Six-month time deposits reported for 1990-91, 12-month time deposits thereafter.

Prime rate until 1999, current account overdrafts thereafter.

Effective yield on five-year government bonds.

In effect from March to April 1995.

In effect from April 1995 to December 1996.

In effect from January 1997 to September 1998.

In effect October 1998.

November-December 1998.

Table 17.

Netherlands Antilles: Structure and Performance of the Banking System, 1994-2002

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Source: Bank van de Nederlandse Antillen.

Extended by commercial banks only.

Corporate sector: business loans plus other mortgages. Households: consumer loans plus individual mortgages.

Interest rate on working capital loans minus time deposit rate. Interest rates for prime borrowers are usually about two percentage points less, but no consistent time series is available. From 12/1999 lending rate is current account overdrafts.

Table 18.

Netherlands Antilles: Nonbank Financial Intermediation Insurance Companies, 1994-2000

(In millions of NA f.)

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Source: Bank van de Nederlandse Antillen
Table 19.

Netherlands Antilles: International Financial Sector, 1994 - 2002

(In million of NA f.)

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Source: Bank van de Nederlandse Antillen
Table 20.

Netherlands Antilles: Balance of Payments, 1996 - 2001

(In millions of NA f., transaction basis)

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Source: Data provided by the Netherlands Antilles authorities.

Including commercial banks, excluding gold revaluation.

Table 21.

Netherlands Antilles: Current Inflows, 1996 - 2001

(In millions of NA f., transaction basis)

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Source: Data provided by the Netherlands Antilles authorities.
Table 22.

Netherlands Antilles: Current Outflows, 1996 - 2001

(In millions of NA f., transaction basis)

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Source: Data provided by the Netherlands Antilles authorities.
Table 23.

Netherlands Antilles: Capital and Financial Account, 1996-2001

(In millions of NA f.)

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Source: Data provided by the Netherlands Antilles authorities.
Table 24.

Netherlands Antilles: Flow of Development Aid, 1992-2002

(In millions of NA f.)

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Source: Data provided by the Netherlands Antilles authorities.
Table 25.

Netherlands Antilles: Multi-Year Plan Disbursements by Sectors and Authorities, 1992 - 2002

(In millions of NA f.)

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Source: Data provided by the Netherlands Antilles authorities. Note: Breakdown by sector 2000-2002 preliminary
Table 26.

Netherlands Antilles: Aid from the European Development Fund, Disbursements by Sectors and Authorities, 1990-1999

(In millions of NA f.)

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Source: Data provided by the Netherlands Antilles authorities.
Table 27.

Netherlands Antilles: Net International Reserves, 1996-2002

(In millions of NA f., end of period)

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Source: Data provided by the Netherlands Antilles authorities.
1

Prepared by Pawel Dyezewski

2

Brunner (2003) finds that trade has a significantly positive effect on income levels (a one percentage point change in the trade share permanently increases average income by between 0.7 to 1.2 percent) and a significant, albeit small effect on income growth (a one percentage point change in the trade share permanently increases income growth by 0.03 percent).

3

Berezin, Salehizadeh and Santana (2002), show that export earnings in the Caribbean are no more volatile than elsewhere, reflecting the fact that most export earnings are generated from service exports, which are less volatile than goods exports.

4

For example, Nichols (2001) studies annual per capita economic growth of Caribbean economies during the 1960-1998 period. He specifies economic growth as a function of public expenditure on education, growth of per capita exports, the exchange rate, land area per person, and an AR(1) term. Growth of per capita exports and the AR(1) term are found to be the most important determinants of GDP growth, while all other variables have very marginal effects on GDP growth. However, the lack of underlying fundamental theory and the questionable empirical methodology make these findings hard to interpret.

5

It is not possible to determine the prevalence of island economies in the small economy sample in Salvatore’s paper.

6

Factor productivity was calculated using the following growth accounting equation:Gy=MPK⋅I/Y+ELGL+λ where GY is the growth rate of GDP, MPK the marginal product of capital, I/Y the domestic investment to GDP share, EL the elasticity of output with respect to labor, GL the growth rate of labor, and λ the residual or growth of total labor productivity. Because data are not available for all these variables, three important assumptions were made: (i) the labor force growth rate was assumed to be the same as the population growth rate of the previous decade, (ii) the share of labor in national income was set at 0.6, and (iii) MPK set to 0.12.

7

The subset of small island economies in this analysis includes: The Bahamas, Barbados, Comoros, Cyprus, Dominica, Dominican Republic, Fiji, Grenada, Haiti, Ireland, Jamaica, Saint Lucia, Mauritius, Malta, New Zealand, Papua New Guinea, Seychelles, Solomon Islands, Trinidad and Tobago, Tonga, Vanuatu, Saint Vincent and Grenadines, and Western Samoa.

9

Barro and Sala-i-Martin report their regression results for the 1975-1985 period only and limit their panel data to 97 countries (from the total of 138). There are too few island countries in their sample to test the effect of the island dummies.

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Cover IMF Staff Country Reports
Kingdom of the Netherlands-Netherlands Antilles: Selected Issues and Statistical Appendix
Author:
International Monetary Fund
Volume/Issue:
Volume 2003: Issue 159
Publisher:
International Monetary Fund
ISBN:
9781451801002
ISSN:
1934-7685
Pages:
46
DOI:
https://doi.org/10.5089/9781451801002.002
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    Distribution of Growth Rates for Island and Non-Island Economies 1/

    (In Percent)

Distribution of Growth Rates for Island and Non-Island Economies 1/

(In Percent)