Giovannie Alvarez

Form 5
Economics

Contents
Caribbean Economies in a Global Environment...........................................................................................2
Characteristics of Caribbean Economies..................................................................................................2
Economic problems facing the Caribbean economies.............................................................................4
Development strategies for Caribbean economies in a globalized environment....................................8
Terms related to the Caribbean Economies in a Global Environment...................................................11
E-business and E-commerce..................................................................................................................15

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Caribbean Economies in a Global Environment

Characteristics of Caribbean Economies

The Caribbean economies are monocrop economies dependent on one export, usually from
the primary sector; for example, agriculture and the extractive industries such as petroleum,
natural gas and bauxite.

The smaller islands specialize in tourism, which is a tertiary sector activity. However, because
the economies are dependent mainly on one industry, they are still monocrop economies.

The following table shows the main exports of Caribbean economies

Country Main export

Antigua and Barbuda Petroleum products, manufactured goods and
sugar
The Bahamas Tourism, crude oil, sea food and fruits
Barbados Cement, sugar and tourism
Dominica Bananas, cocoa, citrus fruits, copra
Grenada Bananas, cocoa, mace, nutmeg
Guyana Rice, sugar, timber (bauxite)
Jamaica Alumins, bauxite, bananas, sugar
St. Kitts and Nevis Sugar, light manufactured goods
St. Lucia Bananas, coconut products, cocoa
St. Vincent and the Grenadines Bananas, copra, eddoes and dasheen (taro)
Trinidad and Tobago Oil and natural gas

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The Caribbean regions comprises of many small island states. In these countries, there are small
populations. Jamaica and Trinidad and Tobago are the more populated islands, with
populations of 2.7 million and 1.3 million people respectively. As a result of the small
population, there is a small market for most goods and services.

With the exception of Jamaica, Guyana and Trinidad and Tobago there is no natural resource
endowment in the Caribbean islands. This is due, in part to the small size of the countries.

In the Caribbean economies, there is a large primary sector. In Jamaica, Guyana and Trinidad
and Tobago this sector is an extractive industry: bauxite in Jamaica and Guyana, and petroleum
and natural gas in Trinidad and Tobago. In these larger Caribbean countries, the secondary and
tertiary sectors are more developed than the smaller Caribbean states, but not as well
developed as the true developed countries. In the smaller Caribbean islands, the primary sector
is agriculture. The secondary and tertiary sectors in the smaller Caribbean states remain
relatively undeveloped.

In the Caribbean economies, there is a large informal sector in which economic and financial
activities take place. Economic activities include: production of goods and services, and trade.
There are also do it yourself services and community members helping each other out in
construction activities without payment. Financial activities include borrowing and lending
between family members, friends, and even money lenders. All these activities take place
without being officially recorded.

Again, with the exception of the larger three countries of Guyana, Trinidad and Tobago and
Jamaica, the smaller islands states have insufficient arable land to cultivate sufficient food for
their own populations. As a result, the food import bills of these countries are quite high.

The bolded and underlined phrases are the main characteristics of Caribbean economies

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Economic problems facing the Caribbean economies

Low per capita GNP. Caribbean economies have low per capita GNP. This means that the
average income enjoyed by an individual for a given year is low. As a result, the standard of
living is low relative to the developed countries of the world. The standard of living is the level
of economic well-being of an individual or a population. It takes into account income levels
and the quality and quantity of goods and services consumed.

It also includes non-monetary factors, such as the quality of a person’s living environment and
work environment, hours of work, life expectancy, literacy rates and levels of externalities.

Large amount of unskilled labor. A large percentage of the population is not trained or skilled
for the modern industrial sector. This means that the country would not be able to fully utilize
their labor force and their resources.

Little access to technology and use of capital in the production process. Although some firms
use modern, highly efficient methods, many other firms have labor-intensive production
processes. This means that the ratio of labor to other factors of production is high. Less use of
capital in the production process means lower productivity.

Large food import bill. Many of the Caribbean countries have current account deficits. They
spend more on the importation of goods and services than they earn in the export of goods and
services. Much of this is expenditure on goods and services for current consumption: for
example, food. While many of the countries are involved in agriculture, crops such as bananas,
sugar cane and nutmeg are not food crops.

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Large part of the population living under the poverty line. The poverty line is the minimum
amount of income necessary to enjoy an adequate standard of living. The poverty line will vary
from country to country. Some people live on less than US$1 per day. The poor have to rely on
government provision of health care and other social services. Many of the poor go without
electricity and potable water. Fortunately, the region does not have people living in extreme
poverty, that is lacking the basic needs of food, clothing and shelter.

Migration out of skilled professionals (the ‘brain drain’). Skilled labor and professionals leave
the Caribbean region in search of better jobs and opportunities in developed countries. When
people such as nurses, doctors, teachers and technicians migrate, the economy will have fewer
of these workers available to provide for the needs of the population. In addition, resources
spent to train these professionals are lost.

Undeveloped infrastructure hindering economic activity and trade. Some Caribbean

economies do not have such efficient and modern transport and communication networks as
developed countries, even though urban areas might have been developed. In some countries,
remote areas not accessible by paved roads and might not have access to piped water,
electricity, telephones and the Internet.

Large debt burden. In the Caribbean economies, GNP is low but the countries need funds to
finance infrastructure and the provision of services such as health and education. Export
earnings are low, but the countries must import goods and services to satisfy basic needs.
These countries are very poor and so have to borrow to meet expenditure.

The result is that the countries have large debt and, because of the low GDP, they also have a
large debt burden. The debt burden is the cost of the debt in terms of the strain it places on the
government and people of a country.

When funds are used to repay a debt and its interest, this represents a transfer if funds from
the given country to a foreign government, bank or international institution. These funds could
otherwise have been used in the country to provide goods and services such as health,
education, infrastructure and social services.

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There is little capital investment and the country might experience little or no growth in real per
capita GNP. The debt burden is measured by the debt-to-GDP ratio.

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Extreme poverty – occurs when people lack the very basic needs of food, clothing and shelter.

Debt-burden - The debt burden is the cost of the debt in terms of the strain it places on the
government and people of a country.

Structural adjustment polices – They are policies that a country must implement in order to
qualify for an IMF or World Bank loan.

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Development strategies for Caribbean economies in a globalized environment

Investment in human capital. Provision of education and training will reduce the extent of poverty in
these countries. It enables the poor to find jobs, earn an income and increase their quality of life. Some
examples of the government of Trinidad and Tobago’s investment in human capital are: investment in
the University of Trinidad and Tobago, provision of free tertiary education, and investment in the Multi-
Sector Skill Training Programme (MuST)

Export-led growth – Exports are an injection into the circular flow of income. Sale of export increases
the earnings of domestic firms, create employment and result in the growth of real GDP per capita
(economic growth). This reduces the percentage of the poor in the country.

Provision of social services – Many governments have to provide social services to the poor in order to
help them escape the cycle of poverty. Such services include free education and health care, and
subsidized transport and water. These assistances would help raise the quality of life for the poor and it
would alleviate their poverty.

Development of the entrepreneurial class – The development of a spirit of entrepreneurship amongst

the people would encourage them to start new businesses. This will create jobs and increase national
income. This is another development strategy open to Caribbean economies.

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Foreign direct Investment (FDI). Foreign direct Investment is the long-term investment in a
country by an investor from abroad. The foreign investor sets up the firm of takes over a local
company. By definition, the foreign investor must have control in the given firm.

This is UNLIKE a portfolio investment, where a small foreign investor simply purchases shares
in a local company and earns dividends on those shares.

With FDI, the foreign firm locates in the host country to gain access to resources – that is, cheap
labor and natural resources – and to gain access to markets. The FDI process consists of a
parent firm setting up in a subsidiary host country, thereby forming a transnational
corporation (TNC), also called a multinational corporation (MNC).

When the foreign firm locates in the Caribbean economy, it will cause an initial inflow of foreign
exchange and so help to improve a balance of payments deficit. FDI will increase the number of
firms operating in a country. This will increase economic activity in the country. Increased
economic activity will increase the jobs available and so help to reduce unemployment.

It will increase access to technology, thus increasing labor productivity and introducing new
methods of production to the region. More people employed means higher national income
and, possibly, economic growth. It is possible for the foreign firms to provide jobs for the
skilled. This might encourage would-be migrants not to migrate, and so reduce the brain-drain.

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Foreign borrowing – Countries can borrow from foreign governments, banks and international
financial institutions in order to promote development. The World Bank has lent to the region
to develop basic education, reform the postal sector and support HIV/AIDS programmes. The
World Bank approved a US$20 million loan for HIV/AIDS prevention and control in Trinidad and
Tobago in 2003

In Jamaica, there was the Reform of Secondary Education World Bank project in 2002.
Countries can also borrow to develop infrastructure. The International Monetary Fund (IMF)
lends to countries that have balance of payment problems. The World Bank lends funds for
development projects. To qualify for loans from these organizations, countries must
implement structural adjustment policies in their economies.

Some of these policies include:

 Cutting spending on social services

 Devaluation of an overvalued currency
 Trade liberalization
 Balancing budgets
 Not overspending.

These policies help to ensure/reassure that the loan given from the international body, would
be used for the desired purpose.

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Terms related to the Caribbean Economies in a Global Environment

Debt burden - The debt burden is the cost of the debt in terms of the strain it places on the
government and people of a country

Structural adjustment - They are policies that a country must implement in order to qualify for
an IMF or World Bank loan

Economic integration – Also called regional integration, is an agreement among nations to

reduce or eliminate trade barriers and agree on fiscal policies.

Protectionism- This refers to government policies that restrict international trade to help
domestic industries. Some example of protectionists policies are tariffs, quotas and subsidies

Laissez-faire – It is an economic philosophy of free -market capitalism that opposes government

intervention. It restricts government intervention in the economy.

Common market – This term is an agreement between countries that allow products, services
and workers to cross borders freely. A common market aims to provide the free movement of
capital, goods, services and labor within member states.

Economic union – It is one of the different types of trading blocs. It refers to an arrangement
between countries that allow products, services, and workers to cross borders freely. The union
is aimed at eliminating internal trade barriers between the member countries.

Customs union – It is an agreement between two or more neighboring countries to remove

trade barriers, reduce or abolish customs duties.

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Globalization – It is the process by which people and goods move easily across borders. It is
also the worldwide interaction of firms.

Trade liberalization – It is the removal of tariff and non-tariff barriers in trade, basically
international.

Bi-lateral agreement – It is an agreement between two countries to promote trade and

commerce.

Multi-lateral agreement – It is an agreement between more and two countries to promote

trade and commerce.

International Monetary Fund (IMF) – This an organization of 190 countries, working to foster,
global monetary cooperation, secure financial stability, facilitate international trade, promote
high employment and sustainable economic growth, and reduce poverty around the world.

Caribbean Community (CARICOM) – It is a group of developing Caribbean countries that are

working together to promote economic and regional integration.

African, Caribbean and Pacific (ACP) – There are a group of independent states that have
undertaken to reduce poverty promote development and seek greater integration into the
global economy.

Free Trade Area of America (FTAA) – It is a region in which a group of countries have singed a
free trade agreement and maintain little or no barriers to trade in the form of tariffs or quotas
between each other.

Association of Caribbean States (ACS) – It is an association of sates that is intended to promote

regionalism among the member states.

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Caribbean and Canadian Association (CARIBCAN) – It is an agreement that provides one-way
duty- free access into the Canadian market for commodities that satisfy certain rules of origin
requirement.

Caribbean Single Market and Economy (CSME) – It is an arrangement among the CARICOM
Member States for the creation of a single enlarged economic space through the removal of
restrictions. This would in turn result in the free movement of goods, capital and persons
(CARICOM nationals).

World Bank – They are a provider of financial and technical assistance to individual countries
around the globe.

Organization of Eastern Caribbean States - The Organization of Eastern Caribbean States

(OECS) is an economic union comprising of ten islands located in the Eastern Caribbean that
promote the unification of economic and trade policies between its member-states

European Union (EU) - The European Union is a unique economic and political union between
27 EU countries.

Caribbean Basin Initiative – It is an organization intended to facilitate development of stable

Caribbean Basin economies by providing beneficiary countries with duty-free access to the U.S.
market for most goods.

Caribbean Development Bank (CDB) - The Caribbean Development Bank (CDB) is a multilateral
financial institution (FI) dedicated to assisting Caribbean nations and dependencies achieve
sustainable long-term economic growth and development

Foreign Direct Investment - Foreign direct Investment is the long-term investment in a country
by an investor from abroad.

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Closed economies - is one that has no trading activity with outside economies. A closed
economy is completely self-sufficient, with no imports or exports from international trade.

Open economies - An open economy is one that interacts freely with other economies around
the world. An open market is an economic system with little to no barriers to free-market
activity. An open market is characterized by the absence of tariffs, taxes, licensing
requirements, subsidies, unionization, and any other regulations or practices that interfere with
free-market activity

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E-business and E-commerce

E-commerce is a business model that lets firms and individuals buy and sell things/items over
the internet.

E-business is any kind of business or commercial transaction that includes sharing information
across the Internet. E-business is the also the conduct of business processes on the Internet.

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The following images shows the advantages and disadvantages of e-business and e-
commerce on the economy.

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