Working Paper Series: Special Edition of 2016 to 2018 Interns

3.1 Construction of Dataset The following describes the compilation of data needed for the analysis: i. Gross Domestic Product (GDP) - taken from World Bank Data recorded in constant 2005 US dollars; ii. Labour Force - The Penn World Table (PWT) describes the employed as ‘all persons aged 15 years and over, who during the reference week performed work, even just for one hour a week, or were not at work but had a job or business from which they were temporarily absent. 3 For the purposes of this study, the labour force refers only to employed workers. Census data was combined with estimates from the World Bank to construct this time-series; iii. Physical Capital Stock - the stock of physical capital estimates were constructed using the Perpetual Inventory Method as follows: (1) " = "$% ∙ (1 − + ) + " where K is the capital stock, I gross fixed capital formation, + annual depreciation rate of the capital stock, and t an index for time. To determine the initial capital stock, the methodology used by Lorde, Waithe and Francis (2010) was adopted. GDP in 1970 (the starting year of the study period) is multiplied by an incremental capital–output ratio (ICOR) of 6.6 to determine capital stock in that year. 4 Equation (1) is then used to estimate the capital stock time-series for the remainder of the period. Depreciation (δ) is represented by 4% - the rate at which the income tax law of St Vincent and the Grenadines allows for allocating depreciation expenses. iv. Human Capital Stock Like Loening (2005) and Moore (2006), average years of schooling in the labour force is used as a proxy for human capital stock. Before the average years of schooling variable can be determined, the stock of maximum education attainment by levels must be constructed. This is done by deriving 3 See Penn World Data examples - http://data-planet.libguides.com/PennWorldTables 4 In World Bank’s (1987) World Development Report, it was estimated that the ICOR for highly outward-oriented developing countries is 4.5, while for highly inward-oriented countries the value is 8.7. Like Barbados, ST VINCENT AND THE GRENADINES also ‘lies on the spectrum between these two extremes’ and so I also use the arithmetic average of ICOR for highly inward- oriented and highly outward-oriented countries, that is, the value of 6.6 used by Lorde, Waithe and Francis (2010, 1414).

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