Caribbean Islands - Jamaica Patterns of Development

More about the Economy of Jamaica.

Patterns of development

An extensive period of postwar growth transformed Jamaica into an increasingly industrial society. This pattern was accelerated with the export of bauxite beginning in the 1950s. The economic structure shifted from a dependence on agriculture that in 1950 accounted for 30.8 percent of GDP to an agricultural contribution of 12.9 percent in 1960 and 6.7 percent in 1970. During the same period, the contribution to GDP of mining increased from less than 1 percent in 1950 to 9.3 percent in 1960 and 12.6 percent in 1970. Manufacturing expanded from 11.3 percent in 1950 to 12.8 in 1960 and 15.7 in 1970.

Seven consecutive years of negative economic growth were registered from 1973 to 1980 as several external and internal factors changed postwar patterns of economic development. The most important factor was the supply-side shock of quadrupled oil prices. Jamaica was particularly vulnerable in that its economy was relatively oil intensive for a developing country, primarily because the bauxite industry's technology predated the energy crisis. As a result of the crisis, Jamaica's oil import bill increased 172 percent between 1973 and 1974. The economy was simultaneously hurt by the plateau experienced in foreign investment in the bauxite sector in the early 1970s, as the major multinational companies were then operating on the island. Also, both internal and external factors affected the tourist industry. Internal politics, some violence, and the PNP's defiant Third World stance scared away some tourists. PNP politicians, however, blamed the fall in tourist arrivals primarily on biased press coverage in North America and United States attempts at "destabilization."

PNP policies also contributed to negative growth. Unlike other governments in the Caribbean, the PNP in Jamaica was proposing very expansionary fiscal policies during a period of both serious inflation and recession. Government expenditures on badly needed social programs expanded much more rapidly than government revenues, creating chronic budget deficits that increasingly were financed by external loans. By 1980 external debt was as high as 82 percent of GDP and debt service was over 20 percent of exports. Government budget deficits went from a level equal to 6 percent of GDP in 1974 to a level of 18 percent of GDP in 1980. Chronic deficits were coupled with restrictive import controls, unrealistic exchange rates, and tight monetary policies; the result was a sharp drop in investment and a decline of 18 percent in GDP from 1973 to 1980. The deteriorating economic situation and increasing political violence generated serious capital flight and emigration of skilled labor, thereby creating further long-run obstacles to future growth and development.

Although growth did occur in the 1980s, it was sporadic and unsustained. Real GDP growth was 4.0 percent in 1981, 0.0 in 1982, 1.8 in 1983, 0.4 in 1984, -4.5 in 1985, and was estimated at 2.0 percent in 1986. Despite some growth in the first half of the decade, 1985 GDP was still below 1981 levels in real terms. Furthermore, economic growth did not keep pace with population growth; as a result, per capita GDP, in constant terms, declined 7.5 percent from 1981 to 1985. Observers estimated that real per capita GDP in the mid 1980s was close to pre-independence levels. Modest annual growth was expected in the late 1980s.

The economy went through a structural adjustment process with the help of unprecedented funding from the World Bank (see Glossary), the International Monetary Fund (IMF--see Glossary), and the United States Agency for International Development (AID). The adjustment process integrated the local economy more fully with the international economy by reducing tariffs, promoting nontraditional exports, increasing the role of the private sector, and devaluing the Jamaican dollar (J$). Nonetheless, recession in the world economy and the depressed prices for traditional exports prevented significant net increases in foreign investment or exports. Although there was substantial growth in nontraditional exports, such growth was unable to offset the large fall-out in traditional exports and production. Unemployment, the greatest social problem, remained stagnant at 25 percent in the mid-1980s.

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