This Selected Issues paper analyzes the income dispersion and comovement in the Eastern Caribbean Currency Union region. It finds that incomes are diverging, with the Leeward Islands converging to a higher income level than the Windward Islands. The paper examines the macroeconomic impact of trade preference erosion on the Windward Islands and demonstrates the substantial impact from preference erosion on growth, trade balances, and fiscal positions. The paper also analyzes the size of the informal economy in the Caribbean.
: Output, public investment, foreign direct investment (FDI), the real effective exchange rate, external debt-to-GDP ratio, and credit to the private sector: sourced from the authorities and IMF staff reports, where appropriate. The public investment and FDIdeflators were estimated using the OECD STAN database.
Correlation statistics are presented in Table V.2 below. All variables are given in log first differences multiplied by 100 (as used in the regression) and, with the exception of the real effective exchange rate and the external debt-to-GDP ratio, are