An Investigation into Changes in Income Inequality in St. Lucia (1995-2007) following the Liberalization of International Banana Marketing

A reduction in the in the level of income inequality could be considered one of the factors necessary for sustainable development in the Caribbean, and it has been often suggested that a liberalized trade regime is one of the means to achieve this outcome. This paper reports on an examination of the change in inequality in St. Lucia following the liberalization of international banana marketing using household expenditure survey data (1995 and 2005) and income tax filer data for 1998 and 2007. The non-parametric bootstrap was used to compute Gini coefficients. This method was combined with Davidson’s (2009) method for computing standard errors, to conduct reliable statistical inference on the Gini coefficients to assess the change in inequality, at the national level, between 1995 and 2007. It was concluded that there is evidence of a reduction in income inequality based on significant differences in the Gini coefficient between the two periods for both sets of data. While the quality of the data may preclude a concrete discussion of major policy implications, it can be suggested that the attempt by the government of St. Lucia to mitigate the effect of the loss of employment due to the subsequent contraction of the banana industry may have been effective. Thus, despite the massive exit of the work force from agriculture, other employment opportunities in the construction and service sectors as well as social safety nets such as a farmers pension plan compensated for the anticipated decline in household income due to liberalization of the international banana market. Additionally, government programs undertaken to restructure the competitiveness of the industry may have had a positive impact on income inequality. Further study of the relationship between government programs and income inequality following the liberalization is therefore warranted.