CARIFORUM and UK EPA Study

(ix) The growth of regional national income has implications for exports. A positive shock to national income growth immediately affects exports from the region, but the shock slowly dissipates for about 5 years (see Appendix A7) (x) The growth of the labor force can enhance export capacity. A negative shock to the growth of the labor force has the potential of adversely affecting exports for about 2 years (see Appendix 8) (xi) Positive trade shocks momentarily increase labor force growth but dissipates over time. Hence, the continuity/sustainability of trade could have great potential for the growth of the regional labor force (see Appendix A:9). (xii) Positive engagements in trade or positive trade innovations increase capital accumulation. However, the positive effects of shocks start to tapper after about 2 years. (xiii) Positive increases in the volume of trade favorably affects product diversification. This may well be through the export channel of the region (see Appendices A2 and A 11). (xiv) Trade innovations increase the value of the trade weighted exchange rate (see Appendix A12) 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.

Vector Autoregressive (VAR) models are generally utilized to accomplish such tasks. A representative model, say Equation 3, can be specified in the form of a moving average function:

P

¥ å

å

X AX U = +

iU

® F

1

t

i

t

t

i

t i -

-

(9)

1

0

i

i

=

=

1 1 i A A - F = F + F + 2 2 ... i - i

, 1,2,...; =

p i p A i - F

(10)

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