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DIGITAL INFRASTRUCTURE’S OUTSIZED POTENTIAL FOR THE CARIBBEAN

January 11, 2022 by Henry Mooney - David Rosenblatt - Antonio García Zaballos
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Our latest issue of the Caribbean Quarterly Economic Bulletin highlights new IDB
research suggesting that many Latin American and Caribbean countries lag behind
most advanced economies in digital and telecommunications infrastructure.
Closing these gaps could yield dividends in productivity, employment, and
growth—particularly for the six members of the IDB’s Caribbean Country
Department (The Bahamas, Barbados, Guyana, Jamaica, Suriname, and Trinidad and
Tobago). This is true for all Latin American and Caribbean countries, and
especially so for our six economies—where benefits in terms of GDP growth are
often an order of magnitude larger than the required investment. These and
related issues are discussed in our latest publication, which also includes
separate sections on recent developments, challenges, and digital infrastructure
needs for each member country.



Five Decades of Growth in the Caribbean—Falling Further Behind

Real GDP growth in many Caribbean countries has, on average, lagged that of
comparable economies around the world. For many, this relative performance has
deteriorated over the past several decades. As highlighted in Figure 1, while
high-, middle-, and low-income countries globally have seen average annual
growth rates of 2 percent or higher since the 1970s, most of the Caribbean
countries have experienced considerable volatility with respect to output, and
struggled to keep up. In fact, all of the six Caribbean economies examined have
experienced at least one decade with average growth of 1 percent or less since
the 1970s, while three have suffered at least one decade characterized by
negative growth, on average. These economies have also underperformed relative
to other small economies from around the world (e.g., World Bank Small States
Forum members).



Slow Productivity Growth—A Brake on Development

Poor and deteriorating relative growth performance in the Caribbean has many
drivers and antecedents. As small and open economies, they are all highly
dependent on external demand as an economic engine. Similarly, most are island
or coastal economies that suffer from outsized exposure to the ravages of
natural disasters and climate change. These and other shocks have undermined
macroeconomic stability and complicated policymaking. But one key challenge for
Caribbean economies has been slow productivity growth. Against this backdrop,
total factor productivity (TFP) levels (measured in constant national prices)
have fallen over the past five decades for Barbados, Jamaica, and Trinidad and
Tobago. This suggests production inefficiency at the aggregate level that
explains a large part of the poor growth performance described in the previous
section.



Economic Benefits and Costs of Investment in Digital Infrastructure

There are many factors that affect productivity, and consequently, economic
growth. One key deficit that has adversely affected developing countries has
been underinvestment in capital goods and infrastructure—both public and
private. In particular, research from the IDB’s Connectivity, Markets and
Finance Division has attempted to quantify levels of digital infrastructure that
prevail in countries across the world, including across Latin America and the
OECD. Using these data, researchers can calculate “gaps” that exist between
individual Latin American and Caribbean economies and the average for OECD
countries. This exercise has been used to estimate the potential economic
benefits for Latin American and Caribbean countries of bringing digital
infrastructure up to OECD levels, as well as the possible costs this would
involve.

For nearly half of the Caribbean economies, this type of investment could yield
cumulative GDP increases in the double digits. Similarly, for many countries
across Latin America and the Caribbean this could imply transformative
improvements in productivity levels (Figure 3). Taken together, this and related
evidence highlighted above supports the conclusion that a reprioritization of
investment in digital technology and related infrastructure could be pivotal in
accelerating development—particularly for economies in the region that have
relatively lower levels of income.



Figure 4 presents the potential implications of closing digital infrastructure
gaps for the six Caribbean economies analysed here. Results and related
implications for many of the Caribbean economies are striking. For example, for
three of the six economies—The Bahamas, Trinidad and Tobago, and Barbados—, the
potential benefit in terms of the cumulative positive impact on growth could be
between 23 and 58 times the associated costs. In each of these three cases, the
estimated cost of closing these digital infrastructure gaps is relatively
small—under 1 percentage point of GDP in each case. For Guyana, Suriname and
Jamaica, benefits are also potentially significant, despite relatively higher
costs. In the case of Jamaica, for example, estimates suggest that the yield in
terms of cumulative GDP benefits over time could be as much as eight times as
much as the costs of investment.



Summary and Conclusions

Our latest Quarterly Economic Bulletin steps back from recent developments to
focus on the underlying drivers of long-term growth and development challenges
for Caribbean countries. Two key themes have been central to this story—slow
productivity growth and lagging investment in national capital stock. In this
context, our publication examines how investment in a key dimension of national
infrastructure might help drive faster growth. The analysis shows that, based on
existing measures, there is considerable room for improvement in the adoption of
digital technologies and practices, particularly when compared with the world’s
leading advanced economies.

Importantly, IDB research suggests that while in many cases gaps between
countries in the region and OECD economies are large, focused investment in
related areas has the potential to yield very large improvements in growth,
productivity, and, by implication, development outcomes. Our latest Quarterly
Economic Bulletin also presents a new measure of the balance of costs versus
benefits of such investment, and has found that multipliers could be substantial
for many Caribbean countries. These and related results can help to focus public
and private investment priorities over the short to medium term, particularly
because such efforts have never been more consequential for countries that have
been hardest hit by the current pandemic.

Download





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Filed Under: Digital Transformation, Economy & Investment, Innovation & Change


HENRY MOONEY

Henry Mooney serves as Economics Advisor with The Inter-American Development
Bank (IDB). He previously worked with investment bank Morgan Stanley in London,
as well as The International Monetary Fund (IMF) and World Bank, including on
dozens of countries in Africa, Asia, Europe and Central Asia, and Latin America
and the Caribbean. Henry is a dual Brazilian and Canadian citizen. He undertook
his graduate studies in economics and finance at The London School of Economics
(MSc), The University of London (PhD), and Harvard University (MPA).


DAVID ROSENBLATT

David Rosenblatt is the Regional Economic Adviser for the Caribbean Country
Department at the Inter-American Development Bank (IDB). Prior to this position,
David worked for 27 years at the World Bank, where he divided his career between
assignments in the Latin America and Caribbean region and the World Bank Chief
Economist’s office. David holds a Ph.D. in Economics from the University of
California, Berkeley.


ANTONIO GARCÍA ZABALLOS

Antonio García Zaballos es especialista principal en telecomunicaciones en el
Sector de Instituciones para el Desarrollo del BID, donde también es el líder de
la iniciativa de banda ancha. Tiene una amplia experiencia en el sector de las
telecomunicaciones, donde ha trabajado en diferentes puestos de responsabilidad
en empresas como Deloitte y Telefónica, así como en la instituciona reguladora
de las telecomunicaciones en España. Antonio también es miembro y experto en
varios comités sobre conectividad e Internet en instituciones como IEEE y el
Foro Económico Mundial. Posee un doctorado en economía de la Universidad Carlos
III de Madrid y es profesor asociado de finanzas aplicadas a las
telecomunicaciones en el Instituto de la Empresa Business School, así como de
regulación económica en la American University y la Johns Hopkins University. Es
autor de varias publicaciones sobre aspectos económicos y regulatorios para el
sector de las telecomunicaciones.


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