CARIFORUM and UK EPA Study

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r

(3) where ψt represents the GDP deflator (the ratio of nominal to real GDP), ξt represents the real exchange rate and Ot is an openness indicator. While the real exchange rate adjusts for inflation or purchasing power of goods and services, trade flows are significantly contingent on openness. Trade restrictions of assorted forms pose impediments to the flow of goods, services, and financial assets. Accordingly, we hope to incorporate changes in exchange rates and openness as far as data would permit. We prefer to adopt the relative share of a country’s trade to the volume of trade with the similarly situated sampled countries (Warburton, 2012b) as a measure of openness. This measure is presented in contradistinction to trade share (TS), which measures the volume of trade to a nation’s GDP per capita. The trade share is known to be deficient as it produces inconsistent estimates and encourages high probabilities of miscalculation where large open economies can erroneously be characterized as closed economies (Squalli and Wilson, 2011, and Warburton, 2012) (See Note 2). It should be noted that most empirical estimates do not lend themselves to precise parameter estimates. In situations where parameter estimates are misleading or less efficacious because of inadequate or unreliable information we propose probabilistic estimates. We anticipate a useful rendition of Bayesian probability analysis and/or logistic regression for nonparametric insights. (See Note 3). Finally, the CARIFORUM countries are naturally subjected to episodic disturbances (natural disasters). We propose that impulse response functions can model the response of variables, say exports, or the service sector, to sudden perturbations or disturbances. More so, based on historical data (as and where available), the duration of the shocks can be estimated for meaningful investment and policy decisions. (See Note 4). 0 1 2 3 4 5 5 6 t t t t t t t t t K L Y C O bb b bbyb b bxe = + + + + + + + + X

Note 1:

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