FOUN 1301

Economy
Lecture 2: Caribbean economics and
Globalization
Dr. Varuna Ramlal-Bandoo
 Macroeconomic Overview of
Caribbean Economies
•  Caribbean economies, and in particular
CARICOM economies have started to give
more attention to how they use resources
•  Efficiency of resource use is important
•  Efficiency of resource use allows the
CARICOM countries to become more
competitive internationally
•  It also allows them to save more
 Macroeconomic Overview of
Caribbean Economies
•  Savings = Investment in economics
•  Therefore, in order to invest in Caribbean
economies, savings must be present
•  Three main components of savings:
•  1. Government savings
•  2. Private savings
•  3. Corporate savings
 Macroeconomic Overview of
Caribbean Economies
•  All three areas have been lower than Caribbean
economies would have liked
•  Foreign Direct Investment is also very
important within the CARICOM territories as
a means of funding investment in these states
 Macroeconomic Overview of
Caribbean Economies
•  CARICOM states have come a long way since
the early plantation type societies
•  All the CARICOM states (15 full members
and 5 associates) are now considered to be
open economies, which means that their
borders are open to international trade
•  There are many effects of this, both positive
and negative
 CARICOM member states
•  Full members: Antigua and Barbuda,
Bahamas, Barbados, Belize, Dominica,
Grenada, Guyana, Haiti, Jamaica, Montserrat,
St. Kitts and Nevis, St. Lucia, St. Vincent and
the Grenadines, Suriname, Trinidad & Tobago
•  Associate members: Anguilla, Bermuda,
British Virgin Islands, Cayman Islands, Turks
and Caicos Islands
 CARICOM economies
•  Overall, CARICOM member states have been
progressing over time and have been
experiencing economic growth
•  Trade is an important driver of economic
growth within the CARICOM states
•  Tourism, FDI, earnings from other exports
(bananas, sugarcane, cocoa, coffee, bauxite,
gold, oil)
 CARICOM economies
•  Refer to the table titled “Real GDP growth
rates in CARICOM member states”
•  Clearly we see that the average growth rate for
all CARICOM states was positive over the
period 1990-2012
•  All countries experienced periods of negative
growth in that period, but also experienced
periods of positive economic growth
•  TT and Suriname were high growth performers
 CARICOM economies
•  In Table 2.2 the period of analysis is extended
to include 1961-2012
•  Here too, the growth rates on average are all
positive which is an indicator that opening up
the CARICOM states to international trade has
led to increased growth within these states
 CARICOM economies
•  Table 2.4 shows a breakdown of the GDP
composition in the CARICOM states with
comparisons of earlier time periods with 2012
•  All of the countries show that the services
sector accounted for the majority of the GDP
•  This is an important statistic as it indicates that
the majority of the GDP within these states
may be dependent on tourism and other service
oriented industries
 CARICOM economies
•  The ebook continues to show breakdowns on
the CARICOM economies through the tables
outlined in 2.5 to 2.10
•  Debt is another major issue for CARICOM
states
•  With debt comes the issue of interest payments
and how it will be repaid
 CARICOM economies
•  Table 2.10 shows negative fiscal balances for
all the CARICOM states, which indicates that
all the CARICOM states were in debt as of
2012
•  What do you think about that? Good or bad?
•  Tables 2.11 and 2.12 show the large interest
payments due to be made by CARICOM
member states over the period 1990 to 2011.
 CARICOM economies
•  Focus on human capital has increased,
supported by the focus on services and by
Endogenous Growth Theory
•  Endogenous Growth Theory calls for the use
of internal resources to propel economic
growth within countries
•  Investment in human capital, knowledge and
innovation help economies to grow
 CARICOM economies
•  Competitiveness is another issue of importance
to CARICOM states: they need to be
externally competitive to earn foreign
exchange and to boost their GDP per capita
values
•  GDP per capita: GDP per person, a crude
measure of the income of each individual
within an economy, higher values are
considered to be better
 CARICOM economies
•  Exchange rates have been a major focus and
issue for CARICOM countries: fixed, floating
or managed float?
•  Fixed: the exchange rate is pegged to that of
another currency (USA)
•  Floating: the exchange rate changes constantly
in response to the demand and supply of the
local currency relative to another currency
 CARICOM economies
•  Managed float: the exchange rate is allowed to
float within a certain limited range
•  QUESTION: Can you give examples of
countries that follow each of these different
types of exchange rate regimes within the
CARICOM region?
 CARICOM economies
•  Preferential agreements between the
CARICOM states and their former mother
countries existed for many years
•  Recently, such preferential agreements ended
•  Agricultural exports has suffered within the
region
•  In particular, Banana exports
 CARICOM economies
•  Due to this, Diversification has been put to the
forefront
•  CARICOM states were forced to diversify and
move away from the old plantation economy
idea of focusing on one crop only (monocrop
culture)
•  Development depends on the export of other
commodities, not primary commodities only
e.g. manufactured goods and services
 CARICOM economies
•  CARICOM itself was expected to bring drastic
(good) changes within the member states
•  However, the evidence shows that intra-
regional trade is actually quite small and may
have been at the same rate even without
CARICOM
•  Therefore, how can CARICOM member states
take advantage of this integration within the
region?
 CARICOM economies
•  Vulnerability is a concern
•  Poverty is another concern
•  How can these be managed?
•  Size of CARICOM states compared to the rest
of the world?
•  How can we help ourselves?
•  Industrialization by Invitation?
 Industrialization by Invitation
•  Sir Arthur Lewis proposed this policy for the
development of Caribbean states
•  Introduction of manufacturing sector ALONG
WITH a MODERNIZED agricultural sector
•  Invite MNCs to produce here in the Caribbean
states
•  Why?
 Industrialization by Invitation
•  We lacked knowledge
•  Thus far, knowledge base was focused on
agriculture
•  To be competitive internationally, we needed
to enter at a certain level
•  Therefore, external help was needed
 Industrialization by Invitation
•  Hopes of Lewis:
•  1. Transfer of knowledge
•  2. Reinvestment in Caribbean economies
•  3. Backward and forward linkages
•  4. New companies would be formed
•  5. No assembly plants
•  6. No sacrificing of control
 Industrialization by Invitation
•  Mismanagement and misinterpretation led to:
•  1. Very little knowledge transfer
•  2. Hardly any vertical linkages
•  3. Very little reinvestment
•  4. Too many tax breaks
•  5. Assembly plants
•  6. Too similar to plantation owner and slave
relationship
 Contemporary Caribbean Politics
and its effect on Caribbean
Economies
•  Positives:
•  1. Freedom
•  2. Democracy
•  3. Some CARICOM members have high
Human Development rankings (Barbados, the
Bahamas, Antigua and Barbuda, St. Kitts and
Nevis, Trinidad and Tobago)
 Contemporary Caribbean Politics
and its effect on Caribbean
Economies
•  Negatives:
•  1. Issues in the democratic system: crime
•  2. Unemployment and underemployment rates
remain high
•  3. Electoral turnouts have been declining over
time
 Globalization
•  The economic interaction of individuals in
different countries of the world
 Globalization
•  The process of becoming more globally
integrated with the rest of the world
•  Removal of boundaries for capital, human
movement, resources in general
•  Decreasing importance of politics within
economies, more importance of global politics
and global organizations
 Globalization
•  Technological changes worldwide is the
biggest driver of Globalization
•  Technology has made communication and
travel easier for individuals and for businesses
•  Many companies operate globally
•  Persons are finding it easier to find jobs abroad
while living in a different country due to
technological advancements
•  Tourism earns more when travel is easier
 Globalization
•  Unfortunately, all is not positive
•  Negative effects:
•  easy spread of disease (Covid 19 for example)
•  global culture is promoted and some important
aspects of individual cultures are being lost
 Globalization
•  Organizational importance changes
•  1. Global organizations are more important:
IMF, World Bank, World Trade Organization
are all a part of the global governmental
organizations that are important
•  2. Non Governmental Organizations also
operate globally: World Council of Churches,
Amnesty International
 Globalization
•  3. Business organizations have changed:
Multinational Corporations (MNCs) {which
are also called Transnational Corporations or
TNCS} are also gaining importance
internationally
 Globalization
•  Summary of Positive effects:
•  1. Employment is created
•  2. International alliances are formed
•  3. Easier to move across the globe
 Globalization
•  Summary of Negative effects:
•  1. Power distribution is poor, major
inequalities
•  2. Lack of accountability and transparency
•  3. Culture loss and identity loss
 Globalization
•  Features of Globalization:
•  1. Removal of trade barriers
•  2. Removal of Foreign Direct Investment
(FDI) barriers
•  3. Development of Technology:
communication, transport
•  4. Increased migration
•  5. Free market thinking
 Globalization
•  1. Education
•  2. Health care
•  3. Commercial
•  4. Legal
•  5. Social
 Globalization and CARICOM
economies
•  How can CARICOM economies take
advantage of Globalization?
 FOUN 1301: Economy Lecture 2
•  Tutorial Questions:
•  1. Define globalization and state how
CARICOM can improve intra regional trade
using Globalization
•  2. Discuss the pros and cons of Globalization
for CARICOM member states compared to the
rest of the world
THE END