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4.2 Variables and Data Sources
This research has one explained variable: economic growth and two explanatory variables: trade openness and good governance. The author also controlled for population size and system of government as these variables can play a pivotal role in influencing the explained variable. All variables, with the exception of system of government, are
quantitative continuous in nature.
Explained Variable:
Log GDP/Capita. Economic growth as defined in most economic books is an increase in the capacity of a country’s economy to produce goods and services compared from one period to another. The impact trade openness and good governance has on the economies of the Commonwealth Caribbean countries was measured using the development indicator GDP per capita at constant 2010 prices in USD. The GDP per capita is the quotient (in USD) of the GDP and the country’s midyear population. GDP per capita was logged by one year to reduce extremities. GDP per capita indicator was obtained from the World Development Indicator (World Bank, 2017). The World Bank Open Data is a comprehensive database accessible to everyone that contains up-to-date data needed for this study (1972-2016) and most
importantly data for all twelve Commonwealth Caribbean countries.
Explanatory Variables:
Trade Openness. There is a growing literature on the nexus of trade openness and economic growth. Many economists (Dollar & Kraay, 2004; Edwards, 1998; Harrison, 1995;
Yanikkaya, 2003) argue that trade openness fosters economic growth which in turn leads to economic development. As is the common practice of many economists (Frankel & Romer, 1999; Irwin & Terviö, 2002) the author measured a country’s trade openness as the ratio of trade to GDP. The author relied on dataset from the World Development Indicator (World Bank, 2018). Dataset containing statistics on total trade (imports and exports) as percent of GDP was obtain for the twelve Commonwealth Caribbean countries for the period 1972-2016.
Good Governance. Economists have found evidence that good governance of a country does play a vital role in economic growth. Developing and under developing country to escape poverty inequality, leaders/governments need to concentrate on the politics and
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TRADE OPENNESS, GOOD GOVERNANCE AND ECONOMIC GROWTH 57
political process (Acemoglu & Robinson, 2013). That is, implement policies that deter poverty, not those that contribute to poverty and benefit the elites. There exists a growing number of international organizations developing comparable measured of governance scores and indexes (World Governance Indicators, Freedom House Score (FHS), Corruption
Perception Index, Global Integrity Index, etc.).
The author choose the FHS as its good governance indicator for two main reasons.
First, the FHS is the only score that captures and takes into account a broad range of questions that assesses good governance (10 political rights questions and 15 civil liberties questions). Second, due to the period of the study (1972-2016), the Freedom House Score is the earliest form of measurement (since 1972) of governance that includes all countries in the study, facilitating the tracking of changes over time (Kaufmann & Kraay, 2007b).
Throughout the years, scholars (R. Barro, 1996; Grier & Tullock, 1989; Helliwell, 1994;
Kormendi & Meguire, 1985; Scully, 1988) have used the FHS of political freedoms and civil liberties as good governance indicator.
Table 13. Breakdown of Freedom House Score
Source: Freedom House (2018)
Table 13 summarises the breakdown of the FHS. Freedom House uses 25 questions (political rights and civil liberties) to deduce the FHS. Of the 25 questions 10 are questions dealing with political rights (categories of electoral process and functioning of government both have 3 questions while the category of political pluralism and participation has 4 questions). The remaining 15 questions measure civil liberty of which the subcategories of
Political Rights Civil Liberties
Total Scores PR Rating Total Scores PR Rating
36-40 1 53-60 1
30-35 2 44-52 2
24-29 3 35-43 3
18-23 4 26-34 4
12-17 5 17-25 5
6-11 6 8-16 6
0-5 7 0-7 7
Range of Combined ratings of PR and CL: 2-14
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freedom of expression and belief, rule of law, and personal autonomy and individual rights all have 4 questions each, while the subcategory associational and organizational rights has 3 questions. For each of the 25 questions, a country can score between 1 point (lowest score) to 4 points (highest score). To this, the total points a country can score in political rights is 40 points while for civil liberties is 60. Having calculated the total points obtained in the 25 questions, the political rights and civil liberties scores are each put in ranges and assigned a rating ranging from 1 (representing the greatest degree of freedom) to 7 (representing the smallest degree of freedom). To this, a range of combined ratings of political rights and civil liberties can be deduced with 2 (being the highest rating) to 14 (being the lowest)
(Abramowitz, 2018). However, since the author found this a little confusing to interpret the results, for this study the author inversed the ratings on the dataset so that a ratings ranges from 2 (being the lowest freedom rating) to 14 (being the highest freedom rating).
Control Variables:
Log Population. Earlier research has found that population size do affect economic growth (Becker, Glaeser, & Murphy, 1999; Easterlin, 1967; Headey & Hodge, 2009). To this effect, the author controls for population size in the study. Of the twelve countries in the study, Jamaica has the highest population with 2.9 million inhabitants followed by Trinidad and Tobago with 1.4 million inhabitants; the remaining countries all have relatively small size population. The author obtained the population of all twelve countries for the period 1972-2016 form World Development Indicator (World Bank, 2017) and proceeded to find the Log of population to reduce the extremities.
Government. Given that, one of the few differences amongst the Commonwealth Countries is the system of government, which might influence economic growth (Bueno de Mesquita et al., 2005), is a variable which the author places keen attention to. Of the twelve countries in the study, three countries, namely Dominica, Guyana and Trinidad and Tobago have a presidential system of government while the remaining countries have a parliamentary system of government. The author created a dummy variable where it assigned the value of 1 to countries with a parliamentary system and 0 to countries with a presidential system.
Cold War. Given that the period of the study is from 1972-2016, the author thought it was necessary to control for the Cold War period. From political to security and economic effects, the cold war affected the Caribbean region in many ways (Griffin & Khan, 1992). To
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this, the author asks, in which period (during or post-Cold War) did Caribbean countries experienced higher economic growth? Furthermore, does the effects of the Cold War help explain the different level of economic development observed amongst commonwealth Caribbean Countries post-independence? In order to determined how the Cold War
influenced the level of economic development of Commonwealth Caribbean countries, the author controls for this factor by coding the years before 1992 as 1 and the years after 1992 as 0.
Natural Resources. Does the luck hypothesis (possession of natural resources such as fossil fuels and minerals) explain the different level of economic development amongst the Commonwealth Caribbean? Given that some Commonwealth Caribbean countries are
“lucky” to possess such natural resources, the author uses natural resources as a control variable. The author used the variable “Total natural resources rents (% of GDP)” as proxy for natural resources. This data was obtained from the World Development Indicator for all twelve countries for the period 1972-2016. This variable takes into account the sum of the all the rents of natural resources (oil, natural gas, coal (hard and soft), mineral, and forest) (World Bank, 2017).
Figure 4 illustrates the conceptual framework of the variables in the study.
Figure 4. Conceptual framework of the variables in the study.
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