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poverty and benefit the elites. Good trade policies can promote growth in the longer run. The failure of a country’s leaders inhibits the continuous growth and prosperity of a country.
3.3 Nexus: Trade openness, good governance and economic growth
As previously discussed, there exists extensive literature and theories which indicate that trade openness fosters economic growth, which in turn leads to economic development (Dollar & Kraay, 2004; Edwards, 1998; Harrison, 1995; Yanikkaya, 2003) and that good governance also plays an important role in the economic growth of a country (Acemoglu &
Robinson, 2013; Bueno de Mesquita et al., 2005; Drury et al., 2011; Edwards, 1998; Kuznets, 1973). The author builds on the existing literature and argues that this causal relationship of trade openness and good governance is key in explaining the economic growth patterns amongst Commonwealth Caribbean Countries.
Table 9. Regionalism: Commonwealth Caribbean countries and their membership in CARICOM, OECS, ACS and CSME.
Country CARICOM OECS ACS CSME
Antigua and Barbuda X X X X
Bahamas, The X X
Barbados X X X
Belize X X X
Dominica X X X X
Grenada X X X X
Guyana X X X
Jamaica X X X
St. Kitts and Nevis X X X X
St. Lucia X X X X
St. Vincent and the
Grenadines X X X X
Trinidad and Tobago X X X
Note: See Appendix B for more details about each regional organization Source: Compiled by author
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So, how does trade openness and good governance interact? Moreover, how does this interaction leads to economic growth? Compared to Latin America and North America, the Caribbean is a region composed of relatively small-sized countries with small-sized
populations facing countless challenges. From low economic performance to high losses due to natural disasters, these are few of the challenges jeopardizing the economic growth and development of the Caribbean countries. The Commonwealth Caribbean Countries are very well conscientious of the small and low performing economies they all possess and the issues that tag along. To resolve their challenges and curb these issues, these countries have opted regionalism. Numerous regional integration movements have been formed over the years to foster regional integration. (See Table 9, p. 49).
The establishment of regional integration associations has made it easier and convenient for small countries to trade and cooperate with larger countries, paving the way for access to other markets far away from the region and expanding the economies of all countries. As seen on Table 10, Commonwealth Countries and/or CARICOM has signed numerous trade agreements from countries within the LA region and the world at large.
CARICOM has indeed paved the way for member countries to access markets beyond the region, thus leading to the expansion and growing of their economies.
Table 10. CARICOM Trading Agreements
Note: See Appendix B for more details about each TA.
Source: Compiled by author
Trade Agreements Date of Signature Effective Date
CARICOM 1973 1973
CARICOM – EEC 1975 1975 -2000
CARICOM – ACP 1975 1975
CARICOM – USA 1984 1984
CARICOM – Canada 1986 1986
CARICOM – Venezuela 1992 1993
CARICOM – Columbia 1994 1995
CARICOM – Dominican Republic 1998 2001
CARICOM – Cuba 2000 2000
CARICOM – EU (Cotonou) 2000 2000
CARICOM – Costa Rica 2004 2004
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This openness has had a positive impact as we have noted that these countries have integrated well into the region (CARICOM for example), which has led to the creation of a single economy-CSME. With the aid of CARICOM and CSME, member countries have significantly grown their economies throughout the years.
Table 11. Total Merchandise Trade with the World
Country Flow 1960 1970 1980 1990 2000 2010 2016
St. Vincent and the
Grenadines Exports 3 4 15 83 47 42 47
Imports 8 15 57 136 163 338 335
Trinidad and Tobago Exports 287 482 4077 1960 4274 10982 7632
Imports 294 544 3178 1109 3308 6480 8043
Unit: US dollar at current prices (Millions)
Sources: World Trade Organization (2018). Trade Statistics Database.
Table 11 provides an overview of the trade merchandise of the Commonwealth Caribbean countries. From 1960 onwards, all countries have significantly increased their trade merchandise globally. This shows a positive impact because it proves that countries are expanding their economies. However, it is interesting to note that as of the year 2016, all the Commonwealth Caribbean countries still maintain a trade deficit. Guyana and Trinidad and Tobago have a smaller trade deficit when compared to the other countries. The challenge
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rests on the Commonwealth Caribbean countries to overturn the trade deficit into a trade surplus.
With a growing economy, obtained from trade openness, it is expected that the gains would be higher for a country and its citizens overall. Trade has a multiplier effect on a country’s economy. However, this is not the case in many Commonwealth Caribbean countries. What explains this? Given the region’s high rate of government corruption (Transparency International, 2017), does good governance explain the different economic trends that exits amongst the Commonwealth Caribbean countries despite befitting from economic integration?
As we can observe from Table 12, there exists vast variations in the Corruption Perception Index (CPI) amongst the Commonwealth Caribbean Countries (with the exception of Antigua and Barbuda, Belize and St. Kitts and Nevis which have no score). The Bahamas is the best performer amongst the group raking a score of 66 positioning them on the 24th position, while Guyana has worst performance with a score of 34 positioning them in the 108 position. Barbados is the first runner up with a score of 61, while Trinidad and Tobago is second to last position with a score of 35.
Table 12. Corruption Perception Index, 2016.
Source: Transparency International (2018), Corruption Perception Indexes 2016.
Country CPI Score
Rank
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The author’s view of the selectorate theory indicates that the leaders we elect are not suitable for office, espciaylly as it regards to creating policies and trade relations that would promote ecnomic growth, rather than inhibit econmic growth. The selectorate theory blames the form of government, together with the selectorate and the winning coalition in each country, for electing and maintaining a leader that thinks only for the betterment of the winning coalition rather than the betterment of the entire country. Wrong leaders make inadequate decisions for the welfare of the country, which then leads to the disparities in economic growth patterns in some countries.
To this, the author joins the arguemnt presented by Acemoglu and Robinson (2013) that the ignorance of a country’s leader hinders economic growth through the polices he chooses. For developing and under developed countries to escape poverty inequality, governments should implement policies that deter poverty, not those that contribute to poverty and benefit the elites (Acemoglu & Robinson, 2013). Good trade policies can promote growth in the longer run. The failure of a country’s leaders inhibits the continuous growth and prosperity of a country. If the leaders and government officials wisely spend the gains of trade openness in social welfare programs and poverty interventions, the entire country would benefit. A country would experience higher economic performance as the country would experience an upgrade in human capital (better healthcare system, education, security, etc.) making them competitive for the competing world. It does not matter how much a country is open to international trade, if there exists mismanagement of money, and lack of policies to drive the future investment in the country, then the country will never prosper. The same concept applies vice versa. It does not matter how good a government is, if there is no inflow of foreign exchange (trade), the government cannot meet the necessities of its people. The people would be deprived of many opportunities and their productivity crippled. For this reason, it is imperative that countries, in this case Commonwealth Caribbean countries, observe the impacts gained through the interaction of trade openness and good governance on economic growth.
Trade removes the constraints placed on growth by the domestic market, but sustaining trade-induced growth requires the development of technological capabilities to facilitate the upgrading of human capital and good governance ensuring that the adequate monetary and fiscal policies are in place to propel the country’s economy. Through growth and development, countries would certainly achieve the United Nations SDGs of reducing
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and/or eradicating poverty. Citizens of any country can contribute to trade and consequently to growth.
Given the Caribbean Commonwealth country’s close similarities, in various aspects and region’s high rate of government corruption (Transparency International, 2017), the researcher posits that trade openness alongside good governance, play a key role in fostering sustained economic growth and development and consequently leading to an increase in the living standards of the twelve Commonwealth Caribbean countries. The author argues that both trade openness and good governance are key players in the success and/or failure pertaining to the different economic growth patterns observed between the Commonwealth Caribbean countries.
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Chapter Four: Statistical Analysis
4.1 Research Hypothesis
Even after so many similarities in the economies of the Commonwealth Caribbean countries, there still exists varying differences in the economic growth trends since 1960.
Given their close similarities and region’s high rate of government corruption (Transparency International, 2017), the researcher posits that trade openness alongside good governance play a key role in fostering sustained economic growth.
In trying to answer this paper’s research question, what explains the different economic growth trends amongst the twelve Commonwealth Caribbean countries? The author builds on the existing literature and argues that this causal relationship of trade openness and good governance is key in explaining the economic growth patterns observed between the Commonwealth Caribbean Countries. This leads to the following hypothesis:
Hypothesis: The level of economic development of the Commonwealth Caribbean countries will increase with the increase of both trade openness and good governance.
The causal relationship of trade openness and good governance is widely overlooked, especially in the Commonwealth Caribbean context. To this, a study necessitates analysing the relationship of good governance on economic growth trends amongst the Commonwealth Caribbean countries. It is imperative to fill in the gap in the literature, as the findings will provide various implications, especially as it relates to the development of policies in other developing countries.
An empirical study necessitates to fill in the gap at finding a more definitive answer with provide empirical evidence of what explains the different economic growth trends amongst the twelve Commonwealth Caribbean countries. To this, the hypothesis is examined through Time-Series Cross-Sectional (TSCS) analysis (panel data analysis) of trade openness and good governance on the economies of the 12 Commonwealth Caribbean countries for the period 1972 to 2016, (45 years). The period 1972-2016 is very important as it covers the post-independence period of most Commonwealth Caribbean countries.
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