The gains from trade liberalisation: The case of the manufacturing sector in Barbados

Historically, the absence of competition in developing countries has resulted in highly concentrated domestic industries that do not fully exhaust economies of scale, and as a result are characterised by high cost and low productivity. Yet, these industries continue to prosper behind the high walls of protection offered. Liberalisation is expected to reverse this trend, but at what cost? Like many of its regional counterparts, Barbados has already instituted some liberalisation measures as part of their World Trade Organisation (WTO) commitments and further liberalisation is planned for subsequent years. The paper examines the impact of the changes to the existing trade regime in Barbados by utilising an import demand framework and offers some useful insights for the Caribbean region. The results of this analysis indicate that the manufacturing industry could encounter tremendous price competition, which given the inelasticity of demand for imported manufactured goods, evident in most small island economies, could compromise the future survival of these industries. As a result, to effectively compete in the new global trading environment, regional industries will need to reorganise production processes to increase efficiency.