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In this paper the theory of unbalanced productivity growth was applied to the tradeable versus non-tradeable dichotomy for three Caribbean economies. The empirical evidence gave sound support to the Martin-Lewis-Baumol view of unbalanced productivity growth for the period 1961-88. The study verifies that lower productivity in the non-tradeable sector leads to the increasing size of the sector, a major consequence of which is a deteriorating merchandise trade gap, ceteris paribus. The adverse impact of unbalanced growth on the balance of payments became very obvious in the 1980s, when most Caribbean countries experienced deteriorating foreign reserves positions. There is reason to believe that the concern of unbalanced growth will be very real in the 1990s.