Caribbean SIDS productivity collapse: Growth accounting evidence and policy pathways for revival

Abstract

Motivation

Caribbean Small Island Developing States (SIDS) have fallen off-track on multiple Sustainable Development Goals due to a sustained post-2000 productivity collapse that eroded earlier Millennium Development Goals gains. With the 2030 deadline approaching, restoring productive capacity is both an economic and development urgency, with direct implications for SDG 8 (decent work and economic growth), SDG 9 (industry, innovation, and infrastructure), SDG 7 (affordable and clean energy), and SDG 13 (climate action).

Purpose

This study documents and explains the long-term growth deceleration in Caribbean SIDS and identifies a sequenced structural reform agenda to reverse it. Taking the growth accounting diagnosis of Amundsen et al. (2025) as the empirical baseline, the article asks: which productivity components drive the slowdown, and what reforms could restore growth momentum and re-engage the region with the SDGs? The primary contribution is a policy-oriented companion analysis that links aggregate patterns to microeconomic constraints and develops an actionable, politically realistic, three-phase reform package.

Approach and Methods

Growth accounting decomposes real GDP growth and potential output across two periods (1981–2000 and 2001–2019) for 15 Caribbean economies, with real GDP growth also reported for 1980–2000 and 2001–2023. Contributions from total factor productivity (TFP), human capital, population, and physical capital are estimated and compared, with robustness checks across capital share, depreciation, and human capital specifications. The findings are linked to microeconomic constraints through firm-level and sectoral evidence framed as hypotheses consistent with the aggregate residual.

Findings

Average real GDP growth fell from 2.64% to 1.45%, while potential growth declined from 3.3 to 1.6 percentage points. TFP contributions collapsed 83% (0.6 to 0.1 pp) and human capital plus population contributions fell 53% (1.5 to 0.7 pp); together these productivity-related factors explain 76% of the deceleration. A three-phase reform agenda follows: regulatory digitalization and e-government (Phase I); financial deepening via digital payments and insolvency reform (Phase II); and renewable energy transition through regional cooperation (Phase III).

Policy Implications

Macroeconomic stabilization is necessary but insufficient. Coordinated structural reforms targeting microeconomic constraints can operationalize progress on SDG 7, 8, 9, 13, and 17, while inclusive reform design advances SDG 1 and SDG 10. With sustained political commitment, potential growth could move toward the pre-2000 range within a decade, helping re-engage Caribbean SIDS with the SDG agenda by 2030. Quantitative magnitudes drawn from external studies should be interpreted cautiously given limited external validity for small, tourism-dependent, climate-vulnerable islands.