Barbados’ International Competitiveness

Introduction As a small economy, Barbados is a price taker, selling at prices that are targeted at the prices charged by competitors selling goods and services of comparable quality. To remain competitive, Barbadian producers keep their prices in line with the competition and aim to reduce costs and increase productivity, product quality and product differentiation, […]

By Central Bank of Barbados

February 6, 2014

Introduction

As a small economy, Barbados is a price taker, selling at prices that are targeted at the prices charged by competitors selling goods and services of comparable quality. To remain competitive, Barbadian producers keep their prices in line with the competition and aim to reduce costs and increase productivity, product quality and product differentiation, branding and customer loyalty.

Price competitiveness is essential for any small, internationally engaged firm; the small firm must achieve profitability by selling its product at a price which matches that of its international competitors, if it is to remain viable. The small producer attains viability by paying scrupulous attention to product and service quality, continuously improving levels of productivity, and enhancing its products and services so as to make them stand out from the competition. Sophisticated marketing, including the penetration of new markets and niches, and the use of information and communications technologies, are additional tools in the small firm’s armoury. Government plays an important role in strengthening the ability of Caribbean firms to penetrate international goods and service markets, through business facilitation, providing adequate infrastructure, promotion of diversification of export products, productivity enhancements and institutional reform and development (see Tsikata et al, 2009; Caribbean Trade and Adjustment Group, 2003). Measures such as an economy’s regional or global market share (McIntyre, 1995; Worrell and Craigwell, 2008), revealed comparative advantage (Balassa, 1965), the level of local and foreign investment, technological improvement (Monteagudo and Montaruli, 2009; Magnier and Toujas-Bernate, 1994 and Agénor, 1997) and educational advancement all provide indications of a country’s non-price competitiveness.

International agencies and organisations have commented on what they perceive to be a lack of external competitiveness of Caribbean countries. The latest Regional Economic Outlook by the International Monetary Fund (IMF) (October 2013) described the tourism dependent economies of the region as suffering from “chronically weak competitiveness.” However, the IMF, in its 2011 Staff Report on Barbados, admitted that the island’s Real Effective Exchange Rate (REER) was not misaligned based on the fundamental equilibrium exchange rate (FEER) approach, and that alternative approaches suggested that the size of the misalignment was in the region of 7 to 11 percent (IMF, 2011) 3.

This paper undertakes a comprehensive analysis of Barbados’ competitiveness relative to its regional counterparts of comparable size offering similar goods and services. It assesses the island’s overall competitiveness using the Global Competitiveness Report (2013-2014), an independent and wide- ranging examination into a country’s key areas of global competitiveness. Next, we take a look at a number of indicators of market share and productivity and finally assess Barbados’ price competitiveness, adopting the approaches of Worrell, Greenidge and Lowe (2013) and other relevant studies.

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Central Bank of Barbados

The Central Bank of Barbados is responsible for promoting monetary stability, promoting a sound financial structure, fostering development of the money and capital markets, channeling commercial bank credit into productive activities and fostering credit and exchange conditions conducive to the orderly and sustained economic development of Barbados.

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