Barbados Economic Development

4 A Concluding Assessment of the Growth Experience 59 The qualitative and quantitative analysis of economic growth in Barbados over the 19602000 period six factors which can explain the country’s performance. The first factor relates to the nature of the international environment within which Barbados has had to operate. Although it has been subject to external shocks, exports of goods and services have played a critical role in the country’s growth and development. The regression analysis points to the important role of tourist services in the growth process. The second factor relates to the growth of physical capital stock. Both the growth accounting and regression analysis exercises indicate the important role of the growth of physical capital in the growth process. Over the years the government has sought to encourage capital investment through several incentives; for example, accelerated depreciation allowances, low import duties and special income tax rates. The third factor relates to the investment in human capital which been able to support physical capital investment. The government has invested a significant amount of funds in health and education over the years. The regression analysis indicates a positive impact for the human capital variable measured in terms of education. The growth accounting analysis points to the growing importance of human capital as a source of economic growth. The fourth factor is the increase in government consumption expenditure relative to total output in the short-run. The regression analysis indicates a positive and lagged impact of the ratio of government current expenditure to GDP on economic growth. The result suggests that the government has had to intervent in the economy from time to time in order to promote economic growth. The fifth factor involves the general maintenance of macroeconomic stability. Since the economy is vulnerable to external shocks, macroeconomic stability has involved the use of