國
立 政 治 大 學
‧
N a tio na
l C h engchi U ni ve rs it y
Even after various trade agreements in place (See Table 10, p. 50), similar economic activities (Appendix A), and so many similar characteristics (See Table 8, p. 21), there exists varying differences in the economic growth trends Figure 2 (p. 23) of the Commonwealth Caribbean countries post-independence.
Given their similar characteristics and similarities in their economies, why did these twelve countries all experienced different economic growth patterns? With similar
backgrounds together with an under-researched literature, the author’s main research question is,
What explains the different degree of economic development trends amongst the twelve Commonwealth Caribbean Countries?
1.5 Thesis Structure
The thesis is organized into five chapters. Chapter One introduces the study by outlining the general background on the topic and the motivation behind the study. It proceeds by elaborating on the peculiarities that bind the Commonwealth Caribbean countries. The researcher also provides a historical overview of the Commonwealth Caribbean Countries pre and post-independence, summary of the evolution of politics of regional economic integration that then led to globalization and an overlook of the economic trend these countries have experienced post-independence. Finally, yet importantly, this chapter outlines the researcher’s main research question, the importance and implications of the findings of this research.
Chapter Two provides a review of the literature. Firstly, provides a brief elaboration on the theories of economic growth followed by a summary on the fundamental sources of economic growth and development across all countries. It will then narrow it down by reviewing the existing literature explaining the economic growth patterns of the Caribbean countries and brief discussion about the shortcomings of the above literatures.
Chapter Three will focus on discussing the importance of globalization and trade openness in fostering economic growth and development. The author will further elaborate on his theoretical argument - the interaction effect trade openness and good governance have economic growth and development. It explains why it is imperative that Commonwealth Caribbean Countries and other developing countries observe the benefits obtained through
‧
國立 政 治 大 學
‧
N a tio na
l C h engchi U ni ve rs it y
TRADE OPENNESS, GOOD GOVERNANCE AND ECONOMIC GROWTH 25
the interaction of trade openness and good governance. Why having only one single factor, countries cannot expect to gain many benefits.
Chapter Four introduces the research hypothesis and the empirical methodology employed for the research. It elaborates on the variables used as well as their respective data sources. It concludes by providing some statistical results and a brief discussion on the findings.
Finally, Chapter Five wraps up the thesis by providing a summary of the research topic, the hypothesis and findings. It also includes the implications this study has and provides some policy and future study recommendations.
DOI:10.6814/THE.NCCU.IMPIS.016.2018.A06
‧
國
立 政 治 大 學
‧
N a tio na
l C h engchi U ni ve rs it y
Chapter Two: Literature Review
The literature is divided into three sections. The first section provides a brief elaboration on the theories of economic growth starting from the classical period. The subsequent section elaborates on the fundamental sources of economic growth and
development. The last section the provides a review of the existing literature on economic growth and development in the Commonwealth Caribbean countries together with the author’s critique on how these have failed to answer the research question.
2.1 Theories of Economic Growth
With its origin in the 18th century, the idea that trade openness as an engine for economic growth was first brought about by Adam Smith on his book, An Inquiry into the Nature and Causes of the Wealth of Nations (Edwards, 1993). This book gave birth to the Classical Economic Growth Theory at trying to explain economic growth through trade openness, specialization and division of labour. This can be see and explained on Adam Smith’s Virtuous Cycle of Growth. Smith (1776) argued that the division on labour makes each employee an expert in their own area of production, which in turn makes production run smoothly and saves time and money for a company. With production running smoothly, there is increase in production by over two hundred percent, which then leads to an increase in employee’s income. The increase in employee’s income would then lead to an increase in its demand, with more disposable income people are able to afford more products. While the demand for the product increases, the company would need to implement and meet the demand by increasing the supply. With a surplus of products, there is an opportunity for international trade. One of the benefit of conducting international trade, Smith argued, would imply more specialization. The gains of specialization would be in the adaptation of newer methods and tools to improve products and services. Overall, international trade would consequently increase profits and contribute to raise welfare and growth of a nation (Smith, Adam, 1776).
In summary, Adam Smith (1776) alongside other classical economists, most notably David Ricardo (1772-1823), argued that increasing specialization together with the division of labour and international free trade, a country will experience accelerated economic growth.
‧
國立 政 治 大 學
‧
N a tio na
l C h engchi U ni ve rs it y
TRADE OPENNESS, GOOD GOVERNANCE AND ECONOMIC GROWTH 27
However, the Great Depression of the 1930s mobilized economists to find other theories for economic development and consequently gave rise to the Neo-Classical Growth Theory.
In 1956, Robert M. Solow’s article “A Contribution to the Theory of Economic Growth” shed new recommendations on newer ways to enhance economic growth. In this same year, both Solow (1956) and Swan (1956), independently argued that for a country to experience long-run economic growth, the production function needs to be composed of three important factors: labour (population growth), capital (accumulation) and technology
(increase in productivity). This economic growth model function came to be-known as The Solow-Swan Model. The Solow-Swan Model: Y = AF (K, L) where Y = Output, K = the stock of capital, L = labour, and A = technology.
International trade would then enable the easy movement of people and money and certainly increase the flow of new and innovative ideas. Producers tend to travel across the globe in search for better facilities and mechanization to improve the quality and efficiency of their products. There is also an exchange of knowledge, both at the technological and
research levels. Nelson and Phelps (1966) state that in order to speed up production,
managers should adapt new techniques of production. This in turn would make the economy more technologically progressive and bring higher gains to the country’s economy. In summary, the neoclassical growth theory states that a nation experiences long economic growth only through an increase in the proportion of GDP invested while at the same time employing innovative technologies to catapult production and consequently the economy.
The new growth theory is similar to the neoclassical growth theory. However, this theory places importance on the development of human capital and assumes that peoples’
desire for greater profits brings about economic growth. Economist argue that this theory is about competition amongst the population, rather than amongst businesses. People will compete with each other to stay at the top of the game and this competition will then pressure business for newer and innovated goods and services. At the end of the day, business would need to incorporate innovative technologies to keep up with demand. Thus, increasing productivity and human development through education and higher incomes (Yanikkaya, 2003). This is contrary to the neoclassical growth theory, which claims that business are the ones who should start incorporating newer and innovative technologies.
DOI:10.6814/THE.NCCU.IMPIS.016.2018.A06
‧
國
立 政 治 大 學