ABSTRACT
This chapter recommends an alternative policy approach to growth and economic stability in small open economies, one that is sensitive to the economic structure of such economies. It focuses on the policies to improve competitiveness in small open economies, drawing on Caribbean examples. The chapter also focuses on the reasons why small open economies are unable to deploy the standard suite of policies, except for fiscal policies. On the revenue side, fiscal policy should provide incentives for investment in foreign exchange earning activities, and taxes should be structured to have a modest redistributive effect on incomes. The public services that matter for competitiveness and growth include roads, ports, airports, waste management systems, public utilities, transport and communications. Small and medium-sized enterprises provide a significant proportion of jobs in most market economies, and they act as an essential lubricant for the labour force, easing transitions due to new technology or changing market forces.
