Balance of Payments Adjustment in the Caribbean

This paper examines how the balance of payments responds to domestic and foreign real incomes and the real exchange rate for 10 Caribbean economies, using a variety of econometric approaches. This question is interesting because our sample contains three countries with floating exchange rates and seven with fixed exchange rates. Unlike our earlier work on industrial countries, which used the same approach, we find little evidence for a cointegrating balance of payments equation or for satisfaction of the Marshall-Lerner conditions. 1