‘Fix productivity puzzle for growth’

Barbados and other Caribbean countries can unlock more economic growth, but first they must fix the complex, yet surmountable, productivity puzzle.

Key to this is fully exploiting opportunities in digital services, renewable energy, and knowledge-based industries, Shania Taylor, economic analyst at First Citizens Economic Research Unit, recommended in a recent assessment titled The Caribbean’s Productivity Puzzle: Unlocking Growth Potential.

“The Caribbean’s productivity challenge is complex, but not insurmountable. While structural barriers such as low technology adoption, skills mismatches and informality continue to constrain growth, they also highlight clear areas for policy intervention,” she argued.

“As highlighted in broader economic transformation discussions, structural change requires coordinated and sustained effort across multiple sectors. For the Caribbean, unlocking productivity is ultimately about enhancing resilience, competitiveness, and economic opportunity.

“In a global economy defined by rapid technological change and increasing competition, closing the productivity gap will be critical to ensuring long-term growth and economic relevance.

“The region’s ability to transition from low productivity to high efficiency will determine not only its economic trajectory, but also its capacity to compete in an increasingly dynamic global landscape,” Taylor added.

The investment analyst, who is based at First Citizens in Trinidad and Tobago, called productivity “the untapped engine of growth across the Caribbean, one of the most critical yet most underperforming drivers of the region’s long-term economic development”.

“While many economies in the region have achieved macroeconomic stability and moderate growth, productivity levels continue to lag behind global peers, constraining income convergence, competitiveness, and resilience to external shocks,” she noted.

Taylor referenced Inter-American Development Bank information stating that labour productivity growth in Latin America and the Caribbean had averaged less than one per cent annually over the past decade, significantly below emerging Asia, where productivity growth has exceeded three to four per cent in several economies.

She believed that “in an increasingly competitive global economy, productivity is not merely a technical metric but a key determinant of economic transformation”.

“For small, open Caribbean economies, improving productivity is essential to enhancing export competitiveness, attracting investment, and sustaining long-term growth,” the expert asserted.

Taylor suggested that unlocking productivity required the right policies and strategic
solutions, including strengthening education and workforce development.

“Improving productivity begins with investing in human capital. Evidence suggests that countries that align education systems with labour market needs experience significantly higher productivity growth,” she said.

“Expanding technical and vocational education and training programmes can help address skills gaps, particularly in digital and technical fields. Additionally, increasing investment in education remains critical.

“Public spending on education in the Caribbean averages around four to six per cent of GDP,
broadly in line with global benchmarks, but outcomes remain uneven. Improving quality and relevance will be key to translating spending into productivity gains.”

There was also a need to build innovation ecosystems, she underscored.

“Innovation remains underdeveloped across the region. Research and development (R&D) expenditure in most Caribbean economies is below 0.5 per cent of GDP, compared to over two per cent in advanced economies,” Taylor said.

“This limits the development of new technologies and reduces the region’s ability to move into higher value-added industries. Developing innovation ecosystems requires targeted policy support, including tax incentives for R&D, funding for start-ups, and stronger collaboration between universities and the private sector.

“Expanding digital infrastructure is also essential. A ten per cent increase in broadband penetration has been associated with up to a 1.5 per cent increase in GDP growth in developing economies, highlighting the potential productivity gains from digital investment.”

Private sector modernisation was another important ingredient for increased productivity in Barbados and the rest of the Caribbean, the economic analyst said.

“Private sector modernisation is central to improving productivity. Firms that adopt digital tools and modern management practices can experience productivity gains of 20 to 30 per cent, according to global firm-level studies,” she said.

“Improving the business environment will be critical. This includes reducing regulatory burdens, improving access to credit, and strengthening contract enforcement. Small and medium enterprises, which account for over 70 per cent of employment in many Caribbean economies, require targeted support to scale and integrate into global value chains.

“Export diversification also plays a key role. Economies that move into higher value-added sectors tend to experience faster productivity growth. For the Caribbean, this includes opportunities in digital services, renewable energy, and knowledge-based industries.

In her analysis, Taylor pointed out that several structural characteristics contributed to the gap that was negatively impacting regional economies.

“Caribbean economies are typically concentrated in a narrow set of sectors. For example, tourism accounts for over 25 per cent of GDP in economies such as Jamaica and Barbados, while energy dominates Trinidad and Tobago’s export base,” she explained.

“This concentration limits productivity spillovers across sectors and reduces incentives for innovation. Additionally, capital investment remains relatively low. Gross fixed capital formation across many Caribbean economies averages between 20 to 25 per cent of GDP, compared to over 30 per cent in fast-growing emerging markets.”

She continued: “Less investment in machinery, infrastructure, and digital systems constrains firms’ ability to scale and improve efficiency.

“The strong positive relationship between productivity and income levels is [clear], where countries with higher output per hour consistently exhibit higher GDP per capita.”

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