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Caribbean Energy
High energy costs contribute to dampening Caribbean competitiveness and potential growth. This paper overviews power sector challenges and takes stock of national and regional strategies to address them. It presents recommendations to move the energy agenda forward based on analyses of macro-aspects of energy reform. These include: i) quantitative assessment of the impact of energy costs on growth and competitiveness; ii) evaluation of gains from implementing announced renewable energy and energy efficiency targets; and iii) analysis of the impact of energy investments on debt sustainability. The paper argues for a bigger role for the private sector in energy reform and discusses prerequisites for good public-private partnerships.
Caribbean Growth in an International Perspective
After earlier success, growth performance in most Caribbean countries has been disappointing since the early 1990s. With slower growth, output has fallen behind that of relevant comparator countries. This paper analyzes the growth experience of the Caribbean countries from a cross country perspective. Three findings stand out. First, the slowdown in growth is explained more by a decline in productivity rather than a lack of investment. Second, tourism has been a significant contributor to higher growth (through both capital accumulation and productivity) and lower output volatility, and in many countries there is scope for further expansion of this sector. Third, the small size and the fact that most of these countries are islands have limited growth. Policies aimed at improving productivity, further development of the tourism sector, and regional integration could pay dividends in terms of higher growth in the region.
External Devaluations
The paper investigates whether the macroeconomic effects of external devaluations have systematically different effects in small states, which are typically more open and less diversified than larger peers. Through several analytical approaches -- DSGE model, event study, and regression analysis -- it finds that the effects of devaluation on growth and external balances are not significantly different between small and large states, with both groups equally likely to experience expansionary or contractionary outcomes. However, the transmission channels are different: devaluations in small states are more likely to affect demand through expenditure compression, rather than expenditure-switching channels. In particular, consumption tends to fall more sharply in small states due to adverse income effects, thereby reducing import demand. Policy conclusions point to the importance of social safety nets, complementary wage and antiinflation policies, investment-boosting reforms, and attention to potential adverse balance sheet effects to ensure positive outcomes.
Flying to Paradise
This paper studies the role of airlift supply on the tourism sector in the Caribbean. The paper examines the relative importance of U.S.-Caribbean airlift supply factors such as the number of flights, seats, airlines, and departure cities on U.S. tourist arrivals. The possible endogeneity problem between airlift supply and tourist arrivals is addressed by using a structural panel VAR and individual country VARs. Among the four airlift supply measures, increasing the number of flights is found to be the most effective way to boost tourist arrivals on a sustained basis. As a case study, the possible crowding effect of increasing the number of U.S. flights to Cuba is investigated and, based on past observations, we find no significant impact on flights to other Caribbean countries. The impact of natural disasters on airlift supply and tourist arrivals is also quantified.
Weather Shocks and Output in Low-Income Countries: The Role of Policies and Adaptation
We explore the extent to which macroeconomic policies, structural policies, and institutions can mitigate the negative relationship between temperature shocks and output in countries with warm climates. Empirical evidence and simulations of a dynamic general equilibrium model reveal that good policies can help countries cope with negative weather shocks to some extent. However, none of the adaptive policies we consider can fully eliminate the large aggregate output losses that countries with hot climates experience due to rising temperatures. Only curbing greenhouse gas emissions—which would mitigate further global warming—could limit the adverse macroeconomic consequences of weather shocks in a long-lasting way.
Debt, Growth and Natural Disasters A Caribbean Trilogy
This paper seeks to determine the effects that natural disasters have on per capita GDP and on the debt to GDP ratio in the Caribbean. Two types of natural disasters are studied –storms and floods– given their prevalence in the region, while considering the effects of both moderate and severe disasters. I use a vector autoregressive model with exogenous natural disasters shocks, in a panel of 12 Caribbean countries over a period of 40 years. The results show that both storms and floods have a negative effect on growth, and that debt increases with floods but not with storms. However, in a subsample I find that storms significantly increase debt in the short and long run. I also find weak evidence that debt relief contributes to ease the negative effects of storms on debt.
Revisiting the Potential Impact to the Rest of the Caribbean from Opening US-Cuba Tourism
The Cuban revolution and the subsequent US embargo on Cuba helped shape the tourism sector in the Caribbean, facilitating the birth and growth of alternative destinations. Therefore, the apprehension of the Caribbean tourism industry towards a change in US travel policy to Cuba is understandable, but likely unwarranted. The history of tourism in the region has shown that it is possible for all destinations to grow despite large changes in market shares. Our estimations show that liberalizing US-Cuba tourism could result in US arrivals to Cuba of between 3 and 5.6 million, most of it coming from new tourists to the region. We also identify the destinations most at risk of changes in US-Cuba relations.
IMF Research Bulletin, Summer 2017
The Summer 2017 issue of the IMF Research Bulletin highlights new research such as recent IMF Working Papers and Staff Discussion Notes. The Research Summaries are “Structural Reform Packages, Sequencing, and the Informal Economy (by Zsuzsa Munkacsi and Magnus Saxegaard) and “A Broken Social Contract, Not High Inequality Led to the Arab Spring” (by Shantayanan Devarajan and Elena Ianchovichina). The Q&A section features “Seven Questions on Fintech” (by Tommaso Mancini-Griffoli). The Bulletin also includes information on recommended titles from IMF Publications and the latest articles from the IMF Economic Review.
IMF Research Bulletin, June 2016
In the June 2016 issue of IMF Research Bulletin, Eugenio Cerutti interviews Lars E.O. Svensson. Lars, a professor at the Stockholm School of Economics, was a Visiting Scholar at the IMF. In the interview, he discusses monetary policy, financial stability, and life at the IMF. The Bulletin also features a listing of recent Working Papers, Staff Discussion Notes, and key IMF publications. The table of contents from the latest issue of IMF Economic Review is also included.
Weather Shocks and Exchange Rate Flexibility
This paper assesses the stabilization properties of fixed versus flexible exchange rate regimes and aims to answer this research question: Does greater exchange rate flexibility help an economy’s adjustment to weather shocks? To address this question, the impact of weather shocks on real per capita GDP growth is quantified under the two alternative exchange rate regimes. We find that although weather shocks are generally detrimental to per capita income growth, the impact is less severe under flexible exchange rate regimes. Moreover, the medium-term adverse growth impact of a 1 degree Celsius increase in temperature under a pegged regime is about –1.4 percentage points on average, while ...
