Roland Craigwell

Economic volatility and remittances

Purpose - Remittances are the fastest growing source of foreign exchange earnings for developing countries. The purpose of this paper is to assess the impact of remittances on economic volatility of the receiving country. Design/methodology/approach - A panel of 95 countries over the period 1970-2005 is employed in the analysis. To assess the impact of remittances on volatility a multivariate model is estimated using a panel fixed effects approach with cross-section weights. Findings - The study reports that remittances can play a key role in mitigating the effect of adverse output shocks but exert no significant influence on consumption and investment volatility. Moreover, important differential impacts exist across the various country groupings. Practical implications - Countries that are dependent on remittances may have to monitor and forecast future remittance flows and take these projections into account when making changes to either their monetary or fiscal policy stance. Originality/value - The findings provided in this paper should be of use to policymakers in developing countries.

Economic growth, foreign direct investment and corruption in developed and developing countries

Purpose - The purpose of this paper is to examine the relationship between economic growth, foreign direct investment (FDI) and corruption. Design/methodology/approach - Data for 42 developing countries and 28 developed countries is analyzed using panel dynamic ordinary least squares. Findings - FDI has a significant influence on economic growth in both the short run and the long run for developing and developed countries. In the cases of the developing economies, lower levels of corruption enhance the impact that FDI has on economic growth. Originality/value - The study links corruption to the impact of FDI on economic growth.

Threshold Effects of Sovereign Debt: Evidence from the Caribbean

This paper addresses the issue of threshold effects between public debt and economic growth in the Caribbean. The main finding is that there exists a threshold debt to gross domestic product (GDP) ratio of 55–56 percent. Moreover, the debt dynamics begin changing well before this threshold is reached. Specifically, at debt levels lower than 30 percent of GDP, increases in the debt-to-GDP ratio are associated with faster economic growth. However, as debt rises beyond 30 percent, the effects on economic growth diminishes rapidly and at debt levels reaching 55–56 percent of GDP, the growth impacts switch from positive to negative. Thus, beyond this threshold, debt becomes a drag on growth.

Economic Resilience with An Exchange Rate Peg : The Barbados Experience, 1985-2000

This paper discusses the institutional arrangements for exchange rate targeting in Barbados and the critical role they played in the policy response to its balance of payments crisis of 1991-92. The framework featured ongoing cooperation between the central bank and the Ministry of Finance, and the use of a forecast model which highlighted the size of fiscal adjustment needed to secure foreign reserves adequate to maintain the exchange rate peg.

Is the tourism-led growth thesis valid?. The case of the Bahamas, Barbados, and Jamaica

This article seeks to investigate whether there is a causal relationship between tourism growth and economic growth in the Bahamas, Barbados, and Jamaica. Several empirical studies have advanced evidence to support the idea that tourism growth promotes economic growth in a number of countries. Using the cointegration test and a vector autoregression model, this article was able to establish that no equilibrium exists between tourism receipts and gross domestic product in any of the countries studied. The Granger Causality Test, however, does confirm the existence of a shortterm relationship.

The relationship between commercial banks' interest rates and loan sizes: evidence from a small open economy

Traditional finance theory argues that as the size of a loan expands, the interest rate on that loan rises to accommodate the increased risk associated with the loan. However, utilizing firm-level data of the Barbadian banking industry, it is observed that the smaller the loans size, the greater the interest rate applied, and vice versa. Using a fixed effect panel data framework, this article also shows that the interest rate differences among loan sizes can be mainly explained by the borrowers characteristics for local banks while for foreign banks, its operating characteristics were the most important factors.

The behaviour of a small foreign exchange market with a long-term peg-Barbados

This article is a first analysis of daily transactions in the foreign exchange market of Barbados, a small open economy that has had an unchanged peg to the US dollar for over 30 years. As a result of the credibility of the peg, we expect that capital flows will respond to differentials between US and comparable Barbadian interest rates, and that this will result in uncovered interest parity, when allowance is made for market frictions and large discrete events. The tests appear to confirm this.

An aggregate consumption function for Canada: a cointegration approach

This study utilizes cointegration theory and error correction models (ECMs) to specify a candidate dynamiac formulation of the aggregate consumption function using quarterly Canadian date. The variables entering the long-run equlibrium relationship are tested for unit roots using a variety of techniques such as the Dickey–Fuller, the augemented Dickey–Fuller and the Phillips–Perron test profedures. The Engle and Granger cointegration test, and the fully modified consistent and efficient estimator of Phillips and Hansen are used to estimate the cointegration relationship. Johansen’s maximum likelihood approach is also used to determine the rank of the cointegrating matrix. The error correction model, which appears to be a tentatively adequate conditional characterization of the date generating process, revelas that disposable income, wealth, government expenditures, relative prices and liquidity constraints (proxied by the unemployment rate) are important variables. Non-nested tests are carried out against...

Dynamic Modelling of the Current Accounts: Evidence from the Caribbean

This paper uses time series and pooled data to estimate the current account function of a non-oil developing country (Barbados) and an oil dependent economy (Trinidad and Tobago). The pooled data reveals that the terms of trade (TOT), the government variable (BSGDP), foreign incomes (FGDP), the prime rate and long term capital flows (LTKGDP) are significant variables. The cointegration-error correction model suggests that in Trinidad and Tobago, the exchange rate, BSGDP and FGDP are important explanatory variables; for Barbados, TOT and the BSGDP ratio are influential in the long-run while the latter ratio and LTKGDP are important short run regressors. [F10, F11]

Nonlinearity in the reaction of the foreign exchange market to interest rate differentials: evidence from a small open economy with a long-term peg

This article incorporates the Castle and Hendry (2010) portmanteau test into an Exponential Generalized Autoregressive Conditional Hetroscedasticity in Mean (EGARCH-M) model to investigate nonlinearities in the reaction of daily foreign exchange activity to the interest rate differential between the US and Barbados – a small open economy which has been pegged to the US dollar for over 35 years. The results suggest that changes in the interest differential have a significant and nonlinear effect on the Barbadian foreign exchange market. The linear spread term is positive, and so is in line with a theory of uncovered interest parity for an economy with a fixed exchange rate. But, all other spread coefficients have a negative sign, implying that asymmetry is present. Thus, it is possible that there is a threshold at which foreign currencies no longer conform to the uncovered interest parity condition, but rather are negatively correlated with interest spreads. Finally, these findings were consistent in the pre-financial crisis analysis.