政府善治與貿易開放對經濟成長的相互影響: 以大英國協之加勒比海國家為例 - 政大學術集成

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(1)International Master’s Program in International Studies National Chengchi University 國立政治大學國際研究英語碩士學位學程. The Interaction Effect of Trade Openness and Good Governance on 政治大. 立 Economic Growth: The Case of the. ‧ 國. 學. Commonwealth Caribbean Countries ‧ er. io. sit. y. Nat. 政府善治與貿易開放對經濟成長的相 n. al v i 互影響: 以大英國協之加勒比海國家 n C hengchi U. 為例 JAIR JAMIR POL (彭家爾) Advisor: Professor CHIEN-WU HSUEH (薛健吾), Ph. D.. June 2018. DOI:10.6814/THE.NCCU.IMPIS.016.2018.A06.

(2) TRADE OPENNESS, GOOD GOVERNANCE AND ECONOMIC GROWTH. 1. Abstract Given their similar characteristics and economic activities, there exists varying differences in the economic growth trends of the Commonwealth Caribbean countries post-independence. What explains this? In trying to answer this puzzle, together with an under researched literature, the author examines the nexus: trade openness, good governance and economic growth in the Commonwealth Caribbean context. The author argues that these factors are essential in explaining and understanding the different economic growth trends amongst the Commonwealth Caribbean countries. It is imperative for underperforming Commonwealth Caribbean countries to increase trade but at the same time improve their governance. 政治大 policies and management of money, 立 countries can observe unprecedented economic growth.. standings. With an increase in trade, indicating higher inflow of money for the country, good. Using time-series cross-sectional data, the author employs the Fixed Effect model to estimate. ‧ 國. 學. the effects that trade openness and good governance have on the economies of the twelve Commonwealth Caribbean countries for the period 1972 to 2016. The results strongly support. ‧. the argument that good governance alongside trade openness do explain the different. y. sit. io. n. al. er. independence.. Nat. economic growth patterns observed amongst Commonwealth Caribbean countries post-. i n U. v. Key words: Trade Openness, Good Governance, Economic Growth, Commonwealth Caribbean. Ch. engchi. DOI:10.6814/THE.NCCU.IMPIS.016.2018.A06.

(3) TRADE OPENNESS, GOOD GOVERNANCE AND ECONOMIC GROWTH. 2. 摘要大英國協於加勒比海地區的諸多國家，分明具備相似的國家特性及經濟活動，在各自獨立之後，經濟發展程度卻大相逕庭。何以解釋此一現象? 為揭開謎底，筆者試圖參考目前正值研究的相關文獻，並檢驗兩項相互影響的因素，它們分別為：貿易開放程度，以及政府效能。筆者藉此主張：這兩項因素，對大英國協之加勒比海國家之經濟成長，產生了決定性的影響。為提升這些國家嚴重被低估的經濟表現，當務之急，即是同時增進貿易流量，以及改善政府效能。貿易量提升，也意味著更多的錢潮湧入，此時，良好的政策及財務管理，將有助於帶動前所未有的經濟成長。在數據方面，筆. 政治大. 者根據時間序列及橫斷面資料，並採用固定效應模型，統計出自 1972 年至 2016 年，. 立. 貿易開放程度，以及政府效能，對大英國協之加勒比海十二國的經濟成長產生效應之. 關鍵字：貿易開放，善治，經濟成長，英國協之加勒比海國家. Nat. n. al. er. io. sit. y. ‧. ‧ 國. 學. 數據，更進一步論證其假設之正確性。. Ch. engchi. i n U. v. DOI:10.6814/THE.NCCU.IMPIS.016.2018.A06.

(4) TRADE OPENNESS, GOOD GOVERNANCE AND ECONOMIC GROWTH. 3. Acknowledgments The success and fruition of this Master’s Degree would not have been possible without the remarkable contribution of some special people. First and foremost, I am thankful to God, the Almighty, for providing the knowledge and wisdom needed throughout my educational journey, and for guiding me through the processes of this thesis. To my family and friends, I am forever grateful and indebted for the endless love and support given during these two years of arduous work and dedication. I am very fortunate to have them all in my life. To my advisor Dr. Chien-Wu Hsueh, a heartfelt thank you for the invaluable time,. 政治大 this made the writing of this thesis 立 hassle free - I remain indebted. To my thesis committee,. support, and professional advice offered throughout the writing of this thesis. Needless to say,. Dr. Yen-Pin Su and Dr. Wen-Chin Wu, I offer my sincerest gratitude for the time invested,. ‧ 國. 學. and for the insightful and constructive criticisms, which I very much welcomed, and which helped improve the quality of this thesis.. ‧. To the high calibre professors at International Master Program in International Studies. sit. y. Nat. (IMPIS), my deepest gratitude for the knowledge and expertise transmitted and for the continuous encouragement which helped to steer the way to success. To our IMPIS and ICDF. io. n. al. er. program manager, Miss Chafie Chi-Hui Wei, a profound thank you for being extremely. i n U. v. helpful, reliable and for going far and beyond assigned duties to ensure everyone’s learning,. Ch. engchi. stay and safety in Taiwan a memorable experience.. Thanks are in accord to the International Cooperation and Development Program (ICDF) for their generosity in awarding students, like myself, full scholarships to pursue higher education in Taiwan. I am more than grateful for the opportunity granted. Without the ICDF program, I would probably still be at home dreaming of a better tomorrow, yet knowing that that dream would remain just that – a dream. Getting the ICDF scholarship has indeed been a blessing for my family and I. I can undoubtedly state that my two years in IMPIS, at National Chengchi University and in Taiwan, has been full of remarkable and memorable experiences! Memories to cherish for a lifetime! To all those who directly or indirectly influenced the outcome of this thesis, and who helped in the accomplishment of this Master’s Degree – Thank you!. DOI:10.6814/THE.NCCU.IMPIS.016.2018.A06.

(5) TRADE OPENNESS, GOOD GOVERNANCE AND ECONOMIC GROWTH. 4. Table of Contents ABSTRACT 1 ACKNOWLEDGMENTS 3 LIST OF ACRONYMS 5 LIST OF FIGURES 7 LIST OF TABLES 8 CHAPTER ONE: INTRODUCTION 9 1.1 BACKGROUND AND MOTIVATION 9 1.2 A BRIEF OVERVIEW: THE COMMONWEALTH CARIBBEAN ............................................. 11 1.3 ECONOMIC GROWTH AND DEVELOPMENT..................................................................... 13 1.4 RESEARCH QUESTION ................................................................................................... 22 1.5 THESIS STRUCTURE ....................................................................................................... 24 CHAPTER TWO: LITERATURE REVIEW 26 2.1 THEORIES OF ECONOMIC GROWTH................................................................................ 26 2.2 DETERMINANTS OF ECONOMIC GROWTH AND THE COMMONWEALTH CARIBBEAN....... 28 2.3 EXPLAINING ECONOMIC GROWTH PATTERNS OF COMMONWEALTH CARIBBEAN COUNTRIES .................................................................................................................. 36 CHAPTER THREE: TRADE OPENNESS, GOOD GOVERNANCE AND ECONOMIC GROWTH 40 3.1 TRADE OPENNESS AND ECONOMIC GROWTH .................................................................. 40 3.2 GOOD GOVERNANCE AND ECONOMIC GROWTH ............................................................. 44 3.3 NEXUS: TRADE OPENNESS, GOOD GOVERNANCE AND ECONOMIC GROWTH ................... 49 CHAPTER FOUR: STATISTICAL ANALYSIS 55 4.1 RESEARCH HYPOTHESIS ................................................................................................ 55 4.2 VARIABLES AND DATA SOURCES .................................................................................. 56 4.3 DESCRIPTIVE STATISTICS .............................................................................................. 60 4.4 ESTIMATION MODEL ..................................................................................................... 61 4.5 STATISTICAL RESULTS AND INTERPRETATION .............................................................. 62 CHAPTER FIVE: CONCLUSION 72 5.1 SUMMARY OF RESEARCH .............................................................................................. 72 5.2 RESEARCH FINDINGS ..................................................................................................... 73 5.3 POLICY IMPLICATIONS .................................................................................................. 74 5.4 RESEARCH LIMITATIONS AND FUTURE STUDIES ........................................................... 75 REFERENCES 77 APPENDICES 83 APPENDIX A: MAIN ECONOMIC ACTIVITIES OF THE COMMONWEALTH CARIBBEAN COUNTRIES .................................................................................................................. 83 APPENDIX B: COMMONWEALTH CARIBBEAN MOVEMENT TOWARDS REGIONALISM ........... 84 APPENDIX C: COMMONWEALTH CARIBBEAN EXTERNAL ECONOMIC RELATIONS ............... 88 APPENDIX D: BREAKDOWN OF OBSERVATIONS BY COUNTRY AND VARIABLES. .................. 92. 立. 政治大. ‧. ‧ 國. 學. n. er. io. sit. y. Nat. al. Ch. engchi. i n U. v. DOI:10.6814/THE.NCCU.IMPIS.016.2018.A06.

(6) TRADE OPENNESS, GOOD GOVERNANCE AND ECONOMIC GROWTH. 5. List of Acronyms ACP. African, Caribbean and Pacific Group of States. ACS. Association of Caribbean States. BWI. British West Indies. CASSOS. Caribbean Aviation Safety and Securing Oversight System. CARICOM. Caribbean Community. CCJ. Caribbean Court of Justice. CDEMA. Caribbean Disaster Emergency Management Agency. CARIFTA. Caribbean Free Trade Association. CARIBCAN. Caribbean - Canada. CARIFORUM. Caribbean Forum of African, Caribbean and Pacific Group of. 政治大. 立. States. EU. Eastern Caribbean Dollar European Economic Community. y. Nat. EEC. Corruption Perception Index. ‧. ECD. Central Intelligence Agency. European Union. FDI. io. sit. CPI. ‧ 國. CIA. CARICOM Single Market and Economy. 學. CSME. FTA. Free Trade Agreement. FHS. Freedom House Score. GDP. Gross Domestic Product. GDP/Capita. Gross Domestic Product Per Capita. GNI. Gross National Income. HIC. High-Income Countries. HDI. Human Development Index. ISI. Import Substitution Industrialization. LA. Latin America. LDCs. Less Developed Countries. Log. Logarithm. OLS. Ordinary Least Squares. OECS. Organisation of Eastern Caribbean States. n. al. Ch. engchi. er. Foreign Direct Investment. i n U. v. DOI:10.6814/THE.NCCU.IMPIS.016.2018.A06.

(7) TRADE OPENNESS, GOOD GOVERNANCE AND ECONOMIC GROWTH PCSE. Panel-Corrected Standard Error. PTAs. Preferential Trade Agreements. St.. Saint. SDGs. Sustainable Development Goals. TSCS. Time-Series Cross-Sectional. TA. Trading Agreement. ToC. Treaty of Chaguaramas. UN. United Nations. USA. United States of America. UMIC. Upper-Middle Income Countries. USD. USA Dollar. WEF. West Indies Federation. 學. World Trade Organization. ‧ y. Nat. io. sit. WTO. n. al. er. WDI. 治政大 World Bank 立 World Development Indicators ‧ 國. WB. 6. Ch. engchi. i n U. v. DOI:10.6814/THE.NCCU.IMPIS.016.2018.A06.

(8) TRADE OPENNESS, GOOD GOVERNANCE AND ECONOMIC GROWTH. 7. List of Figures Figure 1. Map of the Caribbean region. 10. Figure 2. Economic growth of the Commonwealth Caribbean countries, 1960-. 23. 2016. Figure 3. Core predictions of the Selectorate Theory. 47. Figure 4. Conceptual framework of the variables in the study. 59. Figure 5. Predictive margins of trade openness and good governance. 69. Figure 6. The marginal effect of trade openness on GDP/Capita. 69. Figure 7. The marginal effect of good governance on GDP/Capita. 70. 立. 政治大. ‧. ‧ 國. 學. n. er. io. sit. y. Nat. al. Ch. engchi. i n U. v. DOI:10.6814/THE.NCCU.IMPIS.016.2018.A06.

(9) TRADE OPENNESS, GOOD GOVERNANCE AND ECONOMIC GROWTH. 8. List of Tables Table 1. Background information of the Commonwealth Caribbean countries.. 12. Table 2. Share of agriculture in GDP (%). 14. Table 3. Share of manufacturing in GDP (%). 14. Table 4. Share of services in GDP (%). 15. Table 5. GNI per capita and income level as of 2016. 16. Table 6. Comparison of GDP per capita at year of independence to year 2016. 17. Table 7. Social indicators for Commonwealth Caribbean Countries. 19. Table 8. Similar characteristics amongst the Commonwealth Caribbean Countries. Table 9. 政治大. Regionalism: Commonwealth Caribbean countries and their. 立. membership in CARICOM, OECS, ACS and CSME CARICOM trading agreements. Table 11. Total merchandise trade with the world. Table 12. Corruption perception index, 2016. Table 13. Breakdown of freedom house score. Table 14. Summary statistics. Table 15. Fixed Effects Model: The effect good governance and trade openness. ‧ 國. 學. Table 10. 49 50 51. 60. io. sit. ‧. Nat. 57. y. 52. n. al. er. has on the level of economic development of Commonwealth Caribbean Countries, 1972-2016 Table 16. 21. Ch. engchi. i n U. v. 63. PCSE OLS Model: The effect good governance and trade openness has on the level of economic development of Commonwealth. 66. Caribbean Countries, 1972-2016. DOI:10.6814/THE.NCCU.IMPIS.016.2018.A06.

(10) TRADE OPENNESS, GOOD GOVERNANCE AND ECONOMIC GROWTH. 9. Chapter One: Introduction 1.1 Background and Motivation The Commonwealth Caribbean is a term used to refer to twelve independent countries that formed part of the British Empire and are geographically located in the Caribbean region. Belize and Guyana are located in the mainland Caribbean while Antigua and Barbuda, Barbados, The Bahamas, Dominica, Grenada, Jamaica, St. Kitts and Nevis, St. Lucia, St. Vincent and the Grenadines and Trinidad and Tobago are island countries spread across the Caribbean region (see Figure 1, p. 10). Caribbean leaders are cognizant of the relatively small-sized economies they possess. 政治大. when compared to their neighbouring counterparts, and as such have sought for economic and political regional integration and globalization at large. Integration would ensure. 立. cooperation between member states and thus prepare them for a competitive world.. ‧ 國. 學. Numerous regional integration movements have been formed over the years, some are still in existence while others have failed. The Caribbean Community (CARICOM), Organization of. ‧. Easter Caribbean States (OECS), the Association of Caribbean States (ACS), and CARICOM Single Market and Economy (CSME) are the largest regional integration associations still in. Nat. sit. y. existence in the Caribbean region. The establishment of these regional integration. io. er. associations has made it easier and convenient for these small countries to trade with larger countries, even access other markets far away from the region. Partnership agreements with. n. al. i n U. v. the European Union (EU), Canada and the United States of America (USA) amongst others,. Ch. engchi. has indeed brought great benefits to the Commonwealth Caribbean countries which enjoy of Preferential Trade Agreements (PTAs) and enjoy lower tariffs (Panagariya, 2002). However, when analysing the economic growth trends of Commonwealth Caribbean countries post-independence, there exists large economic growth differences amongst them, despite their close similarities in many aspects. So, what really explains the differences? Answering this question is vital, as the findings would enable governments and policy makers to tackle the root cause through the adoption of better policies and strategies, which would induce sustained economic growth to curb poverty and inequality. It is imperative that leaders in developing countries ensure they possess a sustainable economy, since their continuous huge increases in population will make it difficult for them to guarantee adequate food and nutrition alongside good standard of living to their future. DOI:10.6814/THE.NCCU.IMPIS.016.2018.A06.

(11) TRADE OPENNESS, GOOD GOVERNANCE AND ECONOMIC GROWTH. 立. 10. 政治大. ‧. ‧ 國. 學. n. er. io. sit. y. Nat. al. Ch. engchi. i n U. v. Figure 1. Map of the Caribbean Region. Source: Congressional Research Service (p. 2) by J. Hornbeck, (2011), U.S.A.. DOI:10.6814/THE.NCCU.IMPIS.016.2018.A06.

(12) TRADE OPENNESS, GOOD GOVERNANCE AND ECONOMIC GROWTH. 11. generations (United Nations, Department of Economic and Social Affairs, 2017). The eradication of poverty in all its forms around the world is the number one target the United Nations (UN) is pursing through the Sustainable Development Goals (SDGs) under the agenda “Transforming Our World-The 2030 Agenda for Sustainable Development.” However, in order to eradicate poverty and all its social complications, a country needs to have a strong and sustainable economy for future generations to come. As stated by the Department of International Development (2008), “Economic growth is the most powerful instrument for reducing poverty and improving the quality of life in developing countries.”. 1.2 A Brief Overview: The Commonwealth Caribbean. 政治大. The discovery of the “New World” in the sixteenth century was an era of grandeur accomplishment by the European colonizers as they were set to spread their might and. 立. influence in the region and the world at large. Since the Spaniards were the first colonizers of. ‧ 國. 學. the New World, the remaining countries of Great Britain, Denmark, France, Portugal and Netherlands, were scrambling to colonize the unoccupied lands, most of which were islands.. ‧. As per the British, the Empire managed to colonize various part of North America, which constitutes of present day the USA, Canada and few islands scattered in the Caribbean. sit. y. Nat. Region. The Caribbean islands came to be-known collectively as the British West Indies (BWI). For over four hundred years, the British Empire controlled and traded the abundant. io. n. al. er. natural resources of these countries, thus deepening the ties culturally, economically, and. i n U. v. politically. By the end of the British Empire in the twentieth century, most territories were gaining their independence.. Ch. engchi. All Commonwealth Caribbean countries gained their independence between 1962 and 1983. Jamaica was the first country to gain independence in 1962 closely followed by Trinidad and Tobago in that same year while St. Kitts and Nevis was the last country amongst the Commonwealth Caribbean to achieve independence in 1983. These new countries came to be-known collectively as the Commonwealth Caribbean, which is a fraction of a greater body, the Commonwealth of Nations. Today, the Commonwealth Caribbean is composed of twelve developing countries situated in the Latin America (LA) (Belize and Guyana) and the Caribbean (Antigua and Barbuda, Barbados, The Bahamas, Dominica, Grenada, Jamaica, St. Kitts and Nevis, St. Lucia, St. Vincent and the Grenadines and Trinidad and Tobago) regions.. DOI:10.6814/THE.NCCU.IMPIS.016.2018.A06.

(13) TRADE OPENNESS, GOOD GOVERNANCE AND ECONOMIC GROWTH. -. -. 100. 440. 1-Nov-1981. Bahamas, The. 387. 13,880. Barbados. 284. 430. Belize. 359. 22,970. 21-Sep-1981. Dominica. 73. 750. 3-Nov-1978. Grenada. 107. 340. 7-Feb-1974. Guyana. 769. Jamaica. 2,872. Nat. 10,990. 6-Aug-1962. io. 26-May-1966. n. St. Kitts and Nevis. 54. 260. St. Lucia. 177. 620. 109. 390. 27-Oct-1979. 1,360. 5,130. 31-Aug-1962. St. Vincent and the Grenadines Trinidad and Tobago Source: Compiled by author.. -. English. Tropical. English. Tropical. English. Tropical. English. Tropical. English. Tropical. English. Tropical. English. Tropical. English. Tropical. English. Tropical. English. Tropical. English. Tropical. English. Tropical. Parliamentary (Since Independence) Parliamentary (Since Independence) Parliamentary (Since Independence) Parliamentary (Since Independence) Presidential (Since Independence) Parliamentary (Since Independence) Presidential (Since 1970) Parliamentary (Since Independence) Parliamentary (Since Independence) Parliamentary (Since Independence) Parliamentary (Since Independence) Presidential (Since 1976). 10-Jul-1973 治政大 30-Nov-1966. 214,970. al. -. 19-Sep-1983. Ch. engchi. 22-Feb-1979. 學. ‧ 國. 立. -. y. 6,651. ‧. The Commonwealth Caribbean Antigua and Barbuda. i n U. Climate. sit. Table 1. Background Information of the Commonwealth Caribbean Countries Population Land Area Official Year of Indep. System of Government (thousands) (sq. km) Language. er. Region/Country. 12. v. DOI:10.6814/THE.NCCU.IMPIS.016.2018.A06.

(14) TRADE OPENNESS, GOOD GOVERNANCE AND ECONOMIC GROWTH. 13. Their geographic location together with their historic ties to Great Britain, the Commonwealth Caribbean countries share multiple similarities (See Table 1, p. 12). Sharing the same geographic location enables all countries to share same tropical climatic conditions and similar, with minor variations the “Caribbean culture.” The Commonwealth Caribbean countries are considered small size countries since their surface area range from 214, 970 square kilometres - Guyana being the largest, to 260 square kilometres - St. Kitts and Nevis being the smallest. Their small surface area also compliments their small population. The most populous country amongst the Commonwealth Caribbean country is Jamaica with 2.9 million people and the least populous country is St. Kitts and Nevis with .054 million people. English is the official language of all twelve countries and nine Commonwealth Caribbean countries still maintain the same government type as Britain- parliamentary democracy with. 治政大 religion with the most believers and followers in all the Commonwealth Caribbean countries. 立 a Commonwealth Realm. In terms of religion, Christianity continues to be the dominant. ‧ 國. 學. 1.3 Economic Growth and Development. The introduction of the production and cultivation of sugar cane as an export. ‧. commodity by Dutch traders in the 16th century marked the birth of trading relations of. sit. y. Nat. Commonwealth Caribbean countries to the rest of the world. The following Tables 2, 3 and 4. io. countries since 1980.. n. al. er. provide the evolution of the composition of economies of Commonwealth Caribbean. Ch. i n U. v. In Table 2 (p. 14), we can observe the share of agriculture in Gross Domestic Product. engchi. (GDP) of all Commonwealth Caribbean countries. With the exception of Guyana, since the 1980s, there has been a consistent overall decrease in the share of agriculture in the GDP of countries. In 1980, almost a quarter of Guyana’s GDP was composed of agricultural products. Since 1990, agricultural products, mainly rice and sugar, compose a third of Guyana’s GDP. Amongst the Commonwealth Caribbean countries, this makes Guyana as the country with the highest shares of agriculture in their GDP. As of 2015, Guyana continued to have the highest agriculture share in their GDP with 34.5% followed by Dominica 16.91% and Belize 14.91%. The main agricultural export in Belize are sugar, banana and citrus, while in Dominica the main agricultural export is banana. The remaining countries have below 9% agriculture share in their GDP with most notable, Trinidad and Tobago and Bahamas having less than 1%. Most of these decreases can be attributed to two reasons. One, many are small island. DOI:10.6814/THE.NCCU.IMPIS.016.2018.A06.

(15) TRADE OPENNESS, GOOD GOVERNANCE AND ECONOMIC GROWTH. 14. Table 2. Share of Agriculture* in GDP (%) Country. 1980. 1990. 2000. 2010. 2015. 3.46. 2.05. 1.77. 1.89. 1.93. Bahamas, The. -. 2.55. 2.85. 2.31. 0.93. Barbados. -. 3.83. 2.30. 1.47. 1.51. Belize. 27.44. 19.98. 17.37. 13.22. 14.91. Dominica. 30.68. 25.01. 13.32. 13.91. 16.91. Grenada. 18.62. 10.56. 5.99. 5.23. 8.67. Guyana. 23.35. 38.08. 31.09. 35.62. 34.50. Jamaica. -. -. 7.04. 6.14. 7.51. 9.94. 4.15. 1.73. 1.59. 1.21. 2.53. 2.40. 7.18. 7.39. 2.62 1.41 0.54 Trinidad and Tobago *Agriculture includes farming, fishing, hunting, and forestry. Source: World Bank (2018), World Development Indicators.. 0.53. Antigua and Barbuda. St. Kitts and Nevis. 治 5.85 政 11.60 大 11.23 16.39 8.57 9.98. St. Lucia. 立. St. Vincent and the Grenadines. ‧ 國. 學. ‧. countries that have limited arable land and two, this limitation pushes them to diversify their economies and as such explore other venues.. Nat. Bahamas, The Barbados. 1990. 2000. 4.50. 2.90. 1.81. sit. 1980. er. al. n. Antigua and Barbuda. io. Country. y. Table 3. Share of Manufacturing* in GDP (%). v i 4.39 5.54 n Ch e 11.58 c h i U8.92 - ng. 2010. 2015. 2.50. 3.03. 4.03. 2.61. 6.37. 3.81. Belize. 23.91. 13.09. 10.87. 14.05. 8.25. Dominica. 4.80. 7.15. 7.68. 2.86. 3.23. Grenada. 2.71. 5.06. 5.26. 4.00. 3.99. Guyana. 12.13. 10.31. 8.15. 45.59. 45.93. Jamaica. -. -. 10.60. 9.01. 9.36. St. Kitts and Nevis. 10.02. 9.36. 7.84. 10.39. 7.70. St. Lucia. 8.88. 6.63. 4.25. 3.17. 2.40. St. Vincent and the Grenadines. 8.58. 8.04. 5.82. 5.70. 5.71. 14.04 7.35 6.30 5.96 Trinidad and Tobago *Manufacturing includes mining, energy production, and construction. Source: World Bank (2018), World Development Indicators.. DOI:10.6814/THE.NCCU.IMPIS.016.2018.A06.

(16) TRADE OPENNESS, GOOD GOVERNANCE AND ECONOMIC GROWTH. 15. Unlike agriculture, which played an integral role in the economies of many Commonwealth Caribbean countries even before independence, the manufacturing sector is relatively less. Table 3 (p. 14) shows the manufacturing share in GDP and from here we can observe that in 1980, Belize, Guyana and St. Kitts and Nevis possessed largest share of manufacturing in GDP with 23.91%, 12.13% and 10.02% respectively. In the years that followed 1980, all countries, including Belize, Guyana and St. Kitts and Nevis, saw decreases in the share of manufacturing in GDP. As of 2015, all these countries, with the exception of Guyana, had their share of manufacturing in GDP less than 10%. Manufacturing in Guyana has gained a remarkable 45.93% GDP share making Guyana the country with the largest share of manufacturing in GDP. Gold, bauxite, food processing are the main manufacturing industries in Guyana.. 政治大 1980 1990 2000. 2010. 2015. 81.81. 81.92. 82.85. 79.32. 79.50. -. 81.04. 79.60. 81.41. 87.84. -. 75.36. 80.06. 84.93. 88.86. 41.69. 57.83. 62.06. 48.38. 56.38. 68.93. 69.86. 73.63. 40.87. 37.04. -. -. Table 4. Share of Services* in GDP (%). Grenada. al. n. Jamaica. io. Guyana. St. Kitts and Nevis St. Lucia St. Vincent and the Grenadines. C h67.75 67.38 engchi. 65.11. 68.27. 71.89. 69.59. 73.25. 77.73. 76.93. 39.88. 57.63. 58.89. 72.93. 69.68. 70.06. 70.44. y. Nat. Dominica. ‧. Belize. sit. Barbados. ‧ 國. Bahamas, The. 學. Antigua and Barbuda. er. 立. Country. iv n U 68.21 67.43. 68.15. 72.96. 76.77. 83.38. 84.56. 69.78. 64.65. 71.69. 73.34. 74.44. 50.20 49.10 43.15 59.03 Trinidad and Tobago *Services include government activities, communications, transportation, finance, and all other private economic activities that do not produce material goods. Source: World Bank (2018), World Development Indicators. As seen in Table 4, the services sector has overtaken the economies of all countries and thus become the chief economic activity of almost all Commonwealth Caribbean countries. Unlike agriculture and manufacturing, the services sector has since portrayed a steady rise since 1980. This increase might be attributed as the Caribbean’s rise as a tourist destination. As of 2015, most Commonwealth Caribbean countries have the share of service in their GDP greater than 70%. The increase in the services sector is because many countries. DOI:10.6814/THE.NCCU.IMPIS.016.2018.A06.

(17) TRADE OPENNESS, GOOD GOVERNANCE AND ECONOMIC GROWTH. 16. are venturing into financial services and tourism. Guyana and Trinidad and Tobago are the only countries that have less than 60% share of service in their GDP. As seen in previous Tables 2, 3 and 4, all Commonwealth Caribbean Countries have grown and diversified their economies to survive in the competing world markets. However, despite having similar economic activities (See Appendix A), there still exist varying degrees in economic growth. Table 5. GNI per capita and income level as of 2016 (Ranking from lowest to highest GNI) GNI per capita (USD). Country. $4,240. Guyana Belize. 立. 政治 $4,360 大 $4,630 $6,770. Dominica. $7,110 $8,400. $13,560. n. al. Barbados. Ch. sit. $9,100. er. io. Antigua and Barbuda. y. Nat. Grenada. Upper middle income Upper middle income Upper middle income Upper middle income Upper middle income Upper middle income Upper middle income. ‧. St. Vincent and the Grenadines. 學. ‧ 國. Jamaica. St. Lucia. Income Level. n U engchi $15,210. iv. High-Income High-Income. $15,690. High-Income. Trinidad and Tobago. $16,240. High-Income. Bahamas, The. $26,490. High-Income. St. Kitts and Nevis. Source: World Bank (2018), World Development Indicators. According to the World Bank (WB) (2017), five of the twelve Commonwealth Caribbean countries (Antigua and Barbuda, The Bahamas, Barbados, St. Kitts and Nevis, and Trinidad and Tobago) are High-Income Countries (HIC) while the remaining seven (Belize, Dominica, Grenada, Guyana, Jamaica, St. Lucia, and St. Vincent and the Grenadines) are Upper-Middle Income Countries (UMIC). The World Bank’s classification of HIC means that these countries have a Gross National Income (GNI) per capita of $12,236 USD or more. DOI:10.6814/THE.NCCU.IMPIS.016.2018.A06.

(18) TRADE OPENNESS, GOOD GOVERNANCE AND ECONOMIC GROWTH. 17. and enjoy a large economy, high quality of life, up-to-date technological advancement and best infrastructure amongst others when compared to other countries outside the range. These five countries have gone far beyond in ensuring that they achieve optimum growth and development. (See Table 5, p. 16). In regards to the GDP per capita, it is no lie that all countries have undoubtedly experienced an increase in the GDP per capita since their independence. For the twelve countries in the study, Table 6 compares their GDP per capita in constant 2010 USD from the year of their independence to the year 2016. Additionally, the table posits the percent change between the years aforementioned. Table 6. Comparison of GDP per capita at year of Independence to year 2016 (Ranking from lowest to highest GDP per capita in 2016). 立. Year of Independence. Percent Change 118%. 1981. $. 2,265. $. 4,328. 91%. 1962. $. 3,788a. $. 4,790. ‧. 26%. 1979. $. 2,287. $. 6,677. 192%. 1978. $. 2,784. $. $. 3,692. io. sit. y. 3,784. 6,881. 121%. 8,676. 195%. $ 13,316. 138%. $ 15,657. 200%. 1966 $ 6,266c $ 16,243 Barbados Trinidad and 1962 $ 5,692 $ 16,259 Tobago 1973 $ 19,435 $ 19,991 Bahamas, The Note: GDP per capita in constant 2010 USD a: Data for the year 1966; b: Data for the year 1977; c: Data for the year 1965 Source: World Bank (2018), World Development Indicators (WDI). Compiled by author.. 159%. n. Grenada Antigua and Barbuda St. Kitts and Nevis. al 1974 1981 1983. Ch. 2,946b. $. 147%. 8,152. St. Lucia. 1979. $. er. 1966. Nat. Jamaica St. Vincent and the Grenadines Dominica. Capita in 2016. at Independence $ 1,738. 學. Belize. ‧ 國. Country Guyana. 政 GDP治Per 大 GDP Per Capita. n U e n$g c5,597 hi $. $. 5,227. i $v. 186% 3%. Similar to the GNI per capita in 2016, Antigua and Barbuda ($13,316), St. Kitts and Nevis ($15,657), Barbados ($16,243), Trinidad and Tobago ($16,259) and The Bahamas. DOI:10.6814/THE.NCCU.IMPIS.016.2018.A06.

(19) TRADE OPENNESS, GOOD GOVERNANCE AND ECONOMIC GROWTH. 18. ($19,991) are positioned on the upper top of the list with a GDP per capita in 2016. Conversely, Guyana ($3,784), Belize ($4,328), Jamaica ($4,790), St. Vincent and the Grenadines ($6,677), Dominica ($6,881), St. Lucia ($8,152) and Grenada ($8,676) are positioned on the lower bottom of the list with a GDP per capita in 2016. As it regards to percent change of GDP per capital from the year of their independence to the year 2016, interestingly most countries have more than doubled their GDP per capita. St. Kitts and Nevis, Grenada, and St. Vincent and the Grenadines have seen the highest percent increase in their GDP per capita with over 190%, while Barbados, Jamaica and Belize have experience the lowest percent increases in their GDP per capita since their independence. The differences in economic patters have greatly affected the development of. 政治大. countries. Table 7 (p. 19) provides and overview of the standings of Commonwealth. 立. Caribbean Countries across multiple social indicators. As of 2015, Dominica had the highest. ‧ 國. 學. infant mortality rate while Antigua and Barbuda had the lowest with 30.20% and 5.30% respectively. In terms of enrolment rate in educational institutions, Dominica had the highest enrolment rate in primary school – 116.01%, St. Vincent and the Grenadines had the highest. ‧. enrolment rate in secondary school – 106.44% and Grenada had the highest enrolment rate in. sit. y. Nat. tertiary school – 91.15%. Almost all countries, with the exception of Guyana, had a life expectancy above 70 years. In terms of unemployment rate, St. Lucia had the highest. io. al. er. unemployment rate with 24.10% while Trinidad and Tobago had the lowest with 3.40%.. n. v i n C h As for 2015, Antigua Human Development Index (HDI) ranking. e n g c h i U and Barbuda, The. Despite having similar performances in the indicators, the huge disparity comes from the. Bahamas, Barbados, and Trinidad and Tobago have the best standings compared to their counterparts as they rank in the top 65 in the HDI rankings amongst 192 countries in the world. All other countries rank lower than 65, with the lowest ranking being Guyana in the 127 position.. DOI:10.6814/THE.NCCU.IMPIS.016.2018.A06.

(20) TRADE OPENNESS, GOOD GOVERNANCE AND ECONOMIC GROWTH. 19. Table 7. Social Indicators for Commonwealth Caribbean Countries (Figures for 2015 unless otherwise stated) Infant Mortality Rate (per 1,000 live births). Primary School Enrolment (% gross). 5.30. 97.05. 9.00. 107.90*. 92.63*. -. Barbados. 11.70. 99.71*. 101.90*. 69.81*. Belize. 13.40. 113.14. 80.79. Dominica. 30.20. 116.01. Grenada. 14.20. 104.87. Guyana. 27.60. Jamaica. Life expectancy (years). Unemployment Rate (% ). Human Development Index** Rank. 76.07563. -. 62. 75.36878. 12.00. 58. 75.6379. 11.40. 54. 23.29. 70.31098. 10.00. 103. 100.49. -. -. -. 96. 99.18. 91.15. 73.49954. -. 79. 85.37*. 88.64*. 13.07*. y. Tertiary School Enrolment (% gross). ‧. Secondary School enrolment (% gross). 66.53937. 11.70. 127. 13.60. -. 82.11. 27.22. 75.80668. 13.50. 94. St. Kitts and Nevis. 8.00. 82.51. 90.39. 79.56. St. Lucia. 12.10. -. 15.70. 104.52. 17.00. 106.16*. sit. io. n. al. 學. Nat. St. Vincent and the Grenadines Trinidad and Tobago. 立. 政治大 102.71 16.23*. er. Antigua and Barbuda Bahamas, The. ‧ 國. Country. i 85.14 16.77 n C U h 106.44e n g c h-i -. -. 74. v 75.28351. 24.10. 92. 73.06495. 18.20. 99. 70.58885. 3.40. 65. *Data for 2010. ** Data from United Nations Development Report 2016. Source: World Bank (2018), World Development Indicators. DOI:10.6814/THE.NCCU.IMPIS.016.2018.A06.

(21) TRADE OPENNESS, GOOD GOVERNANCE AND ECONOMIC GROWTH. 20. Table 8 (p. 21) summarizes the similar characteristics that the Commonwealth Caribbean countries share. These similarities are what make the Commonwealth Caribbean countries a peculiar set of countries. All countries are located in the Caribbean region with the same tropical climatic conditions, are past British colonies, gained their independence in the years between 1960 and 1980, have English as their official language, and are CARICOM member states. We can also observe the two differences amongst these countries is the system of government and the population size. Nine countries have a Parliamentary system with a Commonwealth Realm while the remaining three countries have a Presidential system of government. Population size as explained before is relatively the same across all countries, except for Jamaica and Trinidad and Tobago that have over two million and one million people respectively.. 政治大. In summary, this section provides an overview of the economic growth and. 立. development the Commonwealth Caribbean countries have underwent since their. ‧ 國. 學. independence. We have observed how the composition of the economies and the economic activities of these countries have evolved over the years and how such change have effect their economic growth and development.. ‧. n. er. io. sit. y. Nat. al. Ch. engchi. i n U. v. DOI:10.6814/THE.NCCU.IMPIS.016.2018.A06.

(22) TRADE OPENNESS, GOOD GOVERNANCE AND ECONOMIC GROWTH. 21. Table 8. Similar characteristics amongst the Commonwealth Caribbean Countries. (In Alphabetical Order) Parliamentary Independence system; a Period: Commonwealth 1960s-1980s Realm. EnglishOfficial Language. Caribbean Region. Yes. Yes. Yes. Yes. Yes. Yes. Yes. Yes. Bahamas, The. Yes. Yes. 立Yes. Barbados. Yes. Yes. Yes. Yes. Yes. Yes. Yes. Yes. Belize. Yes. Yes. Yes. Yes. Yes. Yes. Yes. Yes. Dominica. Yes. Yes. No. Yes. Yes. Yes. Yes. Yes. Grenada. Yes. Yes. Yes. Yes. Yes. Yes. Yes. Yes. Guyana. Yes. Yes. No. Yes. Yes. Yes. Yes. Yes. Jamaica. Yes. Yes. Yes. Yes. Yes. Yes. No. Yes. St. Kitts and Nevis. Yes. Yes. Yes. Yes. Yes. Yes. St. Lucia. Yes. Yes. vYes i n Yes. Yes. Yes. Yes. Nat. io. aYes l C Yes h. n. St. Vincent and Yes the Grenadines Trinidad and Yes Tobago Source: Compiled by author. ‧ 國. Yes. e n gYes chi U. ‧. Antigua and Barbuda. y. CARICOM Member. sit. Population less than 1 million. 學. Yes 治政 Yes 大 Yes Yes. Tropical Climate. er. Country. British Colony. Yes. Yes. Yes. Yes. Yes. Yes. Yes. Yes. No. Yes. Yes. Yes. No. Yes. DOI:10.6814/THE.NCCU.IMPIS.016.2018.A06.

(23) TRADE OPENNESS, GOOD GOVERNANCE AND ECONOMIC GROWTH. 22. 1.4 Research Question Caribbean leaders are cognizant of the relatively small sized economies they possess compared to their neighbouring counterparts, and as such have sought for economic and political regional integration and globalization at large. Integration would ensure cooperation between member states and thus prepare them for a competitive world. To tap into the opportunity, Commonwealth Caribbean Countries have grown and diversified their economies to survive in the competing world markets. Even after various trade agreements in place, similar economies, and so many similar characteristics, there exists varying differences in the economic growth trend amongst Commonwealth Caribbean countries postindependence. Figure 2 (p. 23) illustrates the different economic growth (in GDP per capita constant. 政治大. 2010 US$) trends experienced by countries starting from 1960 to 2016. As of 2016, St. Kitts. 立. and Nevis has a GDP per capita greater $15,000, positioning them at the top of all. ‧ 國. 學. Commonwealth Caribbean Countries. The Bahamas, Antigua and Barbuda, Barbados and Trinidad and Tobago follow in that order with their GDP per capita greater than $10,000 USD but less than $15, 000 USD. The remaining countries all have less than $10,000 USD. ‧. GDP per capita. Countries such as Belize, Dominica, Grenada, Guyana, Jamaica, St. Lucia ad. sit. y. Nat. St. Vincent and the Grenadines have had a rather very slow growth in GDP when compare to their counterparts, which have, experienced steeped increases. The 2007-2008 financial crisis. io. al. er. had negative effects on the economies of all Commonwealth Caribbean countries since a. n. v i n C St. Kitts and Nevis countries such as Antigua and Barbudahand e n g c h i U have seen a steady increase in downward dip can be observed for that period. However, even after the financial crisis,. their GDP per capita.. DOI:10.6814/THE.NCCU.IMPIS.016.2018.A06.

(24) TRADE OPENNESS, GOOD GOVERNANCE AND ECONOMIC GROWTH. Antigua and Barbuda. Bahamas, The. 23. Belize. Barbados. 25000. 15000 10000 5000. 立. Dominica 25000. 政治大 Guyana. St. Lucia. St. Vincent and the Grenadines. St. Kitts and Nevis. y. io. 25000. al. n. 20000. sit. 5000. 15000 10000 5000 1960. 1980. 2000. 2020 1960. 1980. Trinidad and Tobago. er. 10000. ‧. ‧ 國. 15000. Jamaica. Grenada. 學. 20000. Nat. GDP Per Capita (constant 2010 USD). 20000. Ch. engchi. 2000. 2020 1960. i n U 1980. v. 2000. 2020 1960. 1980. 2000. 2020. Year Figure 2. Economic growth of the Commonwealth Caribbean countries, 1960-2016. Produced by the author using data from The World Bank (2018), World Development Indicators.. DOI:10.6814/THE.NCCU.IMPIS.016.2018.A06.

(25) TRADE OPENNESS, GOOD GOVERNANCE AND ECONOMIC GROWTH. 24. 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?. 立. 1.5 Thesis Structure. 政治大. ‧ 國. 學. 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. sit. y. Nat. 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. io. n. al. er. trend these countries have experienced post-independence. Finally, yet importantly, this. i n U. v. chapter outlines the researcher’s main research question, the importance and implications of the findings of this research.. Ch. engchi. 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. DOI:10.6814/THE.NCCU.IMPIS.016.2018.A06.

(26) 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.. 立. 政治大. ‧. ‧ 國. 學. n. er. io. sit. y. Nat. al. Ch. engchi. i n U. v. DOI:10.6814/THE.NCCU.IMPIS.016.2018.A06.

(27) TRADE OPENNESS, GOOD GOVERNANCE AND ECONOMIC GROWTH. 26. 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. 政治大 economic growth was first brought about by Adam Smith on his book, An Inquiry into the 立 Nature and Causes of the Wealth of Nations (Edwards, 1993). This book gave birth to the With its origin in the 18th century, the idea that trade openness as an engine for. ‧ 國. 學. 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. y. Nat. each employee an expert in their own area of production, which in turn makes production run. sit. smoothly and saves time and money for a company. With production running smoothly, there. al. er. io. is increase in production by over two hundred percent, which then leads to an increase in. v i n C hpeople are able to afford demand, with more disposable income more products. While the engchi U n. employee’s income. The increase in employee’s income would then lead to an increase in its. 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.. DOI:10.6814/THE.NCCU.IMPIS.016.2018.A06.

(28) 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. 政治大. certainly increase the flow of new and innovative ideas. Producers tend to travel across the. 立. globe in search for better facilities and mechanization to improve the quality and efficiency of. ‧ 國. 學. 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. sit. y. Nat. 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. io. n. al. er. employing innovative technologies to catapult production and consequently the economy.. Ch. i n U. v. The new growth theory is similar to the neoclassical growth theory. However, this. engchi. 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.

(29) TRADE OPENNESS, GOOD GOVERNANCE AND ECONOMIC GROWTH. 28. 2.2 Determinants of Economic Growth and the Commonwealth Caribbean The varying differences in economic growth and development seen across countries, especially LA and East Asia countries, during the second half of the twentieth century has given rise to a new debate amongst economists. What really explains the different levels of economic growth and development? As stated by Banerjee, Bénabou, and Mookherjee (2006): Poor countries, such as those in sub-Saharan Africa, Central America, and South Asia, usually lack functioning markets, have poorly educated populations, and possess outdated or non-existent machinery and technology. These are, however, only proximate causes of poverty, in turn begging the question of why these places don't have better markets, human capital, machinery, and technology. There must be. 政治大. some fundamental causes of poverty leading to these outcomes and, through these. 立. channels, to poverty. (p. 19). ‧ 國. 學. In trying to answer this phenomenon, economists have drawn four sources geography, culture, luck, and institutions, which they classify as the “fundamental sources of. ‧. economic growth” or the “deep determinants of economic growth” and which they argue are the main explanations in the difference of patterns of growth amongst developed and. Nat. al. er. io. sit. y. developing countries. Over the years, they have all been widely debated.. n. v i n C h by Banerjee etUal. (2006) “maintains that the The geography hypothesis as stated engchi Geography. climate, geography, and ecology of a society's location shape both its technology and the incentives of its inhabitants.” They argue that each one of these components significantly shapes a country’s economy. Depending on their geographic location, countries are forced to adapt agriculture systems which suite their climate. We all know that plants grow and bear fruits depending on the climate they have. With this in place, to increase productivity and trade, farmers will be obliged to adapt new and expensive innovative technologies according to their climate. However, due to the high cost in purchasing and maintaining these technologies, especially in tropical climates, may result in very few farmers adapting them. Consequently, failing to adapt newer innovative technologies would result in failure or low agriculture production.. DOI:10.6814/THE.NCCU.IMPIS.016.2018.A06.

(30) TRADE OPENNESS, GOOD GOVERNANCE AND ECONOMIC GROWTH. 29. On their study Gallup, Sachs, and Mellinger (1999) analysed the role a country’s geographic location (land area, location of country (tropics), population (within 100 kilometres of the coast, population within 100 kilometres of the coast or ocean-navigable river, percent of population in landlocked area), and a country’s proximity to core markets in Europe etc.) has on the economies (GDP per capita) of 150 countries whose population was greater than 1 million in 1995. They found strong evidence supporting the hypothesis that geography plays an important role in the development of countries. They noted that countries near the tropics, especially countries in Africa and Central America and the Caribbean, are less developed and prone to many challenges. Countries in the Tropics are very distant of advanced economies (Europe) for trading, have high temperatures that challenges agriculture production, have high population growth rates, and are more vulnerable to diseases such as. 政治大 Location and climate have large effects on income levels and income growth through 立. malaria which hinders the healthiness of their population. Therefore, they concluded that:. their effects on transport costs, disease burdens, and agricultural productivity, among. ‧ 國. 學. other channels. Geography also seems to affect economic policy choices. Many geographic regions that have not been conducive to modern economic growth have. ‧. high population densities and are experiencing rapid increases in population. (p. 179). sit. y. Nat. Rodrik (2002) also contends the importance of latitude and proximity to navigable waters as important components of the geography hypothesis, especially as it relates to access. io. al. er. to the water for easy access to other markets for international trade. With the easy movement. n. v i n C h in search of betterUfacilities and mechanization to Producers tend to travel across the globe engchi of people and money, there is certainly an increase in flow of new and innovative ideas.. improve the quality and efficiency of their products. There is also an exchange of knowledge, both at the technological and research levels. Moreover, Rodrik (2002) posits that a country’s geographic location “plays a direct and obvious role” in determining a country’s income. For countries, whose main dependence is natural resources (agriculture, oil, diamonds, and copper) they need to be competitive on the international market. Thus, the only way to be competitive in the international market is to have high quality natural resources. However, he states, “the quality of natural resources depends on geography.” Rodrik, Subramanian, and Trebbi (2004) further empathized the role geography plays on a country’s economic growth and development:. DOI:10.6814/THE.NCCU.IMPIS.016.2018.A06.

(31) TRADE OPENNESS, GOOD GOVERNANCE AND ECONOMIC GROWTH. 30. Geography is a key determinant of climate, endowment of natural resources, disease burden, transport costs, and diffusion of knowledge and technology from more advance areas. It exerts therefore a strong influence on agriculture productivity and quality of human resources. (p. 132) Providing a contrary to the geography hypothesis is Acemoglu and Robinson (2013, Chapter 2). Acemoglu and Robinson (2013) state that the geography hypothesis, cannot explain the difference between North and South Korea, Chile and Bolivia or even that of the Nogales. As per these examples, these places both share the same geographical location and climate, but different governments. Critique:. 治政 Commonwealth Caribbean countries? I believe the geography 大hypothesis falls short in 立 location of the Commonwealth Caribbean countries answering this question. The geographic Does the geography hypothesis explain the economic difference amongst. ‧ 國. 學. ensure all countries share multiple geographic characteristics. Frist of all, they all share the same type of tropical climate and all are located in the Atlantic Hurricane Belt making all of. ‧. them prone to hurricanes every year. Severe weather such as drought, excess rain, hurricanes and storms significantly affect the economies of countries, but all these countries are adapting. Nat. sit. y. newer and similar technologies to confront these weather phenomena and produce quality. io. er. goods and services. Secondly, with most countries being islands countries (exception of Belize and Guyana) all other countries share similar type of terrain and land area. Sharing the. n. al. Ch. i n U. v. same type of terrain means that these countries possess abundance of natural resources and. engchi. minerals. For example, Belize has little mineral resources, but abundance of arable land and beaches that attract tourism, while Jamaica and Trinidad and Tobago possess abundance of mineral resources. Thirdly, located between North American and South America gives the Commonwealth Caribbean countries every advantage to trade with these countries as all Commonwealth Countries have access to navigational water. Belize and Guyana are to benefit the most since both are situated mainland, which gives them access to both land and water trade routes. With these characteristics and more, we can observe how the geography hypothesis falls short in explaining the different economic growth patterns amongst the Commonwealth Caribbean Countries.. DOI:10.6814/THE.NCCU.IMPIS.016.2018.A06.

(32) TRADE OPENNESS, GOOD GOVERNANCE AND ECONOMIC GROWTH. 31. Culture Globalization has created a more inter-connected planet enabling easier and faster mobility of people. This inter-connectedness has created a “melting pot” of culture, history, religion, and ideas for 7 billion people. However, despite this inter-connectedness and many external pressures, there are countries and societies that have still maintained their cultures intact. Granato, Inglehart, and Leblang (1996) defined culture as “a system of basic common values that help shape the behaviour of the people in a given society (p. 608).” The culture hypothesis states that a country’s culture (beliefs, preferences and values) rather acts as a catalyst towards economic growth. For example, the values passed on within the family can influence the choice of profession a person may undertake. In the case of a women who has been grown in a very conservative home where the idea is that the “women. 政治大. belongs in the kitchen” greatly hinders her professional development. This then limits her job. 立. preferences and thus results as a hindrance which keeps her from embracing a profession she. ‧ 國. 學. would like to obtain, and rather follows a profession which her family and society think fits her perfectly. Scholars Granato et. al (1996) further supported the culture hypothesis in their study. The argued, “Cultural attitudes toward achievement and thrift have a positive effect on. ‧. economic growth.” Conducting an empirical analysis based on data of 25 countries to. sit. y. Nat. measure the correlation between culture and economic growth and using various variables as. io. er. measurement of culture, they found robust correlation. They stated:. That is, controlling for human and physical capital investment, poorer nations grow. n. al. Ch. i n U. v. faster than richer nations; (2) investment in human capital (education spending) has a. engchi. positive and statistically significant effect on subsequent economic growth; and (3) increasing the rate of physical capital accumulation increases a nation's rate of economic growth. (p. 616) Granato et. al (1996) further elaborated on the findings by arguing that in countries and societies where thrift and savings are encouraged contribute to economic growth. That is, these mechanisms further lead to investment and, a country’s economy is highly dependent on investments. Acemoglu (2008) argues that one of the major difference between cultures is religion. “Differences in religious beliefs across societies are among the clearest examples of cultural differences that may affect economic behaviour (Acemoglu, 2008).” Granato et. al (1996). DOI:10.6814/THE.NCCU.IMPIS.016.2018.A06.

(33) TRADE OPENNESS, GOOD GOVERNANCE AND ECONOMIC GROWTH. 32. also support this argument by endorsing Weber’s (1904-1905) argument that religion plays a role in economic growth through the fuelling of capitalism: Protestant Europe manifested a subsequent economic dynamism that moved it far ahead of Catholic Europe. Shifting trade patterns, declining food production in Southern Europe and other factors also contributed to this shift, but the evidence suggests that cultural factors played a major role. Throughout the first 150 years of the Industrial Revolution, industrial development took place almost entirely within the Protestant regions of Europe, and the Protestant portions of the New World. It was only during the second half of the twentieth century that an entrepreneurial outlook emerged in Catholic Europe and in the Far East. Both now show higher rates of economic growth than Protestant Europe. (p. 610). 政治大. Studying other cultural factors that influence economic growth, Marini (2004). 立. analysed the role of ‘achievement motivation’ and ‘trust syndrome.’ The “achievement. ‧ 國. 學. motivation” as stated by McClelland (as cited by Marini, 2004) is “wanting to do well, with respect to standards of excellence.” They further elaborated that wanting to excel in life pushes people out of their comfort zone to be independent. This idea then leads to economic. ‧. growth, as the individual grows, so does the economy.. Nat. sit. y. The “trust syndrome” is defined as having trust in the people and society around you.. io. er. Having their trust and vice versa, promotes economic growth through the implementation of new modern advances. Marini (2004) exemplifies by comparing “traditional societies” versus. n. al. “modern societies.” He states that:. Ch. engchi. i n U. v. Traditional societies were neither better nor worse than modern ones, but that the absence of modern technologies led to a ‘limited-good’ syndrome, where each family, at war with the other, tries to maximize its own material advantage (amoral familism). This restricted range of sociability constitutes an obstacle to economic progress, because economies, to work properly, need trust among impersonal agents. (p. 769) In his empirical study, Marini (2004) found strong support for his argument that both factors, ‘achievement motivation’ and ‘trust syndrome’, are highly correlated with economic growth and as such are necessary for the advancement of economies. Critique: However, contrary to the arguments of these scholars, Acemoglu & Robinson (2013) argue that the other cultural elements - religion, value and ethics - are not explanatory. DOI:10.6814/THE.NCCU.IMPIS.016.2018.A06.

(34) TRADE OPENNESS, GOOD GOVERNANCE AND ECONOMIC GROWTH. 33. variables for understanding poverty and inequality and thus explaining the difference in economic growth amongst countries. The authors argue that the culture hypothesis cannot explain the different level of prosperity between the high-income countries of Argentina and Chile versus the low-income countries of Bolivia and Peru. Interestingly, these four countries share the same Spanish-language, Latino culture and to some extent same history (Acemoglu & Robinson, 2013). Looking at the Commonwealth Caribbean countries, the culture hypothesis cannot hold. Given their historical background, Commonwealth Caribbean countries have very similar culture characteristics. As British Colonies, Commonwealth Caribbean countries share similar colonial histories and all have English as their official language. Additionally, the majority of their populations are Christians and all are composed of diverse races. 政治大 this, it would be deceitful to accept the culture hypothesis in explaining the different 立. including a small size of indigenous people, giving them similar traditions and believes. To. economic growth trends amongst Commonwealth Caribbean countries.. ‧. ‧ 國. 學. Luck. Acemoglu (2008) states that the luck hypothesis as:. y. Nat. sit. Set of fundamental causes that explain divergent paths of economic performance. al. er. io. among otherwise-identical countries, either because some small uncertainty or. n. v i n consequences, or because ofC different among multiple equilibria. (p. 110) h e nselection gchi U. heterogeneity between them have led to different choices with far-ranging. Acemoglu (2008) further elaborates that the multiple equilibria countries are faced with and the choices they make, is what explains the different level of economic growth. Despite having similar characteristics, the choice countries take have different economic impacts. For those whose choices had positive impacts, he calls them luck. For example, a country may decide to adopt technology. Those who adapt technology are faced with human and physical investment, which are good for a country’s economy. Calvo and Mendoza (1999) and Spilimbergo (1999) (as cited by Jadresic & Zahler, 2000) hypothesised that Chile’s rapid economic growth in the 1990s was due to the luck hypothesis. “This accomplishment was to a large extent the result of a favourable external environment, characterized by abundant capital inflows due to a temporary decline in industrial-country interest rates, and allegedly favourable terms of trade. (p. 1)”. DOI:10.6814/THE.NCCU.IMPIS.016.2018.A06.

(35) TRADE OPENNESS, GOOD GOVERNANCE AND ECONOMIC GROWTH. 34. In their study, analysing the economies of countries after taking into account the polices and external shocks that affect a country’s economy, Easterly et al., (1993) found that some countries are really fortunate or “lucky” to experience economic growth despite the shocks. The external shocks countries receive not always positively impacts the economies of countries. “Shocks, especially terms of trade shocks, statistically explain as much of the variance in growth rates over l0-year periods as do country policies (p. 481).” Critique: Does the luck hypothesis explain the different economic growth patterns amongst the Commonwealth Caribbean? Although the luck hypothesis might explain the economic growth in countries such as Trinidad and Tobago that is rich in oil reserves, it does not explain why countries such as Guyana and Jamaica, which are also rich in gold and minerals,. 政治大. are struggling with their economy. While these three countries are fortunate to have natural. 立. minerals and oils, only Trinidad and Tobago has a GNI and GDP per capita. If the luck. ‧ 國. 學. hypothesis were to hold, then we would expect that both Guyana and Jamaica have GNI and GDP per capita. This is not the case. On the contrary, countries such as Antigua and Barbuda, The Bahamas, Barbados, and St. Kitts and Nevis where natural minerals and oil is none. ‧. existent have experienced significant economic growth, positioning them with a high GNI. sit. y. Nat. and GDP per capita. Therefore, it is very optimistic to conclude that the luck hypothesis can. io. er. explain the different economic growth rate amongst Commonwealth Caribbean countries. As it relates to external shocks as being the luck and help in explaining the different. n. al. Ch. i n U. v. economic growth rate, this is not the case. On the contrary, as CARICOM and CSME. engchi. member countries, all countries continue to equally enjoy the benefits of the different preferential trade agreements. And if shocks, like the 2007/2008 world financial crisis, were to repeat itself, this would have a negative impact on the economies of all countries. The economies of all Commonwealth Caribbean Countries were significantly affected. However, even after the shock countries still managed to recuperate. Since the Commonwealth Caribbean countries all form part of the CARICOM and CSME blocks, any trade related shock would be felt across all countries.. Political Institutions Lastly, yet another important determinant of economic growth are institutions. Acemoglu (2008) defines institutions as “rules, regulations, laws and policies that affect. DOI:10.6814/THE.NCCU.IMPIS.016.2018.A06.

(36) TRADE OPENNESS, GOOD GOVERNANCE AND ECONOMIC GROWTH. 35. economic incentives and thus the incentives to invest in technology, physical capital and human capital (p. 111).” Acemoglu (2008) further elaborates that institutions act as channels through which economic growth and development be achieved. It is true, that in most, if not all countries, citizens are governed by rules and regulations, which they did not asked for. However, these indifferences amongst the population can function as an engine to bring about reforms and changes that would produce better outcomes. Citizen’s willingness to organise and demand reforms so that they are able to prosper. Thus, the role of institutions is to enforce these new reforms. Acemoglu (2008) further reminds us that we must be cognizant that not all reforms would produce good outcomes, but be happy that at least we may have a possibility of a good outcome.. 政治大. Ogilvie and Carus (2014) state that even parliamentarians influence institutions. They. 立. elaborated on the case of England and the important role wealthy parliamentarians played in. ‧ 國. 學. creating the perfect preconditions for the Industrial Revolution. They further posit that institutions do act as catalysts for economic growth. “Historical evidence suggests strongly that although markets are required for economies to grow, public-order institutions are. ‧. necessary for markets to function (p. 404).” Ogilvie and Carus (2014) also briefly elaborated. sit. y. Nat. on the role of property rights as a mechanism for economic growth. They contend that property rights are the “single most important institutional influence on economic growth at. io. n. al. er. least since medieval times (p. 405).”. Ch. i n U. v. Focusing on the Commonwealth Caribbean countries, does the British colonial rule. engchi. explain the different ecnomic growth patterns? What are the long term effects of the British colonial rule on the institutions and ecnomic development of Commonwealth Caribbean postindependence? Acemoglu, Johnson, and Robinson (2001) and Kohli (2009) have all tried to answer this question. On their study Acemoglu, Johnson, and Robinson (2001) analysed the effect European colonizers had on institutions of their previous colonies across the world. They theorized the idea of inclusive and extractive institutions. Inclusive institutions or governments are more likely to be economically successful, as states would care for its citizens’ welfare. This means that inclusive institutions and government will invest more in public goods such as education and health amongst others. They stated that “countries with better "institutions," more secure property rights, and less distortionary policies will invest more in physical and human capital, and will use these. DOI:10.6814/THE.NCCU.IMPIS.016.2018.A06.

(37) TRADE OPENNESS, GOOD GOVERNANCE AND ECONOMIC GROWTH. 36. factors more efficiently to achieve a greater level of income (p. 1369).” Through this, investment would then uplift the economic standards of the country as a whole. Inclusiveness is measured through the degree of democracy, popular participation of government, or protection of human rights. Extractive institutions, on the other hand, are less concerned about the welfare of the society, but rather interested in self-gain, i.e. extracting the state’s wealth for personal benefits. Kohli (2009) theorizes the idea of state capacity. Kohli (2009) argues that state capacity is the single most important legacy colonizers had for former colonies. It all depends how much colonies invested in state capacity and how much of that investment former colonies still maintained after independence. Critique:. 治政 Putting it on the Commonwealth Caribbean perspective. 大 We have observed that all 立 with the exception Dominica who adopted a Commonwealth Caribbean countries, ‧ 國. 學. Parliamentary Republic system, adopted the same type of government as the British – Parliamentary Democracy with a Commonwealth Realm. This indicates that Government. ‧. type had little to no influence on the economic growth patterns. However, it may be the. Nat. al. er. io. sit. how good governance influences economic growth.. y. leaders chosen that influence the differences. The following chapter would elaborate more on. n. v i n C h the Europeans U Despite being the first place where e n g c h i landed in the fifteenth century and. 2.3 Explaining economic growth patterns of Commonwealth Caribbean countries. “Discover the New World”, the Caribbean Region is comprised of newly independent. countries. Most countries in the Caribbean region gained independence in the twentieth century, while a few territories are still under control of other countries. Being newly independent, these countries and territories are faced with countless challenges. However, some countries have and continue to perform economically better than others do. What explain this phenomenon? In answering this question, scholars have proposed various reasons. By way of approach, Ramkissoon (2002) analysed ten factors which he thinks might explain the different economic performance of fifteen Caribbean countries. These factors are geography, the degree of vulnerability, natural resources, openness, economic structure, workers’ remittances, culture and social coherence, independence, endogenous policy, and. DOI:10.6814/THE.NCCU.IMPIS.016.2018.A06.

(38) TRADE OPENNESS, GOOD GOVERNANCE AND ECONOMIC GROWTH. 37. political stability (Ramkissoon, 2002). Comparing their initial GDP per capita to that of their GDP per capita in the year 2000, Ramkissoon (2002) found that the microstates of Bahamas, Barbados, Antigua and Barbuda and St. Kitts and Nevis out-performed their neighbours. Openness to international trade, economic structure (tourism and offshore-finance), political stability, endogenous policy and culture and societal cohesion were attributed to be the major factors contributing to the economic difference amongst the fifteen countries. Employing time-series and comparative static estimations, Fuentes, Melgarejo, and Mercer-Blackman, (2015) also tried to investigate empirically the reason behind the different economic growth trends amongst six Caribbean countries - The Bahamas, Barbados, Guyana, Jamaica, Suriname, and Trinidad and Tobago. Fuentes, J. et al., (2015) were cognizant that the size of a country determines its economic development, the larger the land size the better.. 政治大 the negative effects by employing a combination of two factors: good domestic policies (low 立 However, the study found that despite being small size countries, these countries can offset. inflation and fiscal surplus) and greater openness (trade or financial). As per the general. ‧ 國. 學. question, what explains the uneven performance of the economies (using GDP per capita) of these six countries? The author attributed them to the employment of three important factors:. ‧. domestic policies, high indebtedness, and outside shocks (e.g., oil price changes or main. sit. y. Nat. trading partners' tourism demand).. Using time-series and comparative static estimations, Fuentes, J. et al., (2015) found. io. n. al. er. that the major explanation to the different economic growth pattern was due to the. i n C h etourism oil price changes or main trading partners' hi U n g cdemand).. v. combination of three factors: domestic policies, high indebtedness, and outside shocks (e.g.,. Kida (2006) was also baffled by the puzzle and tried to get some answers. In her study, she reviewed the economic performance of the twelve Commonwealth Caribbean countries from 1987-2004. The study showed that thanks to the services sector, the economy of the Caribbean countries significantly grew between 1978 and 2004. Furthermore, it states that the rise of the services sector (with the exception of Guyana), which is an important portion of their GDP, led to the significant shrink in the agriculture sector. Interestingly, Suriname saw a huge rise in both sectors. However, Kida (2006) notes that in the Caribbean “productivity growth has declined and the underlying determinants of productivity have deteriorated (p. 28).” To cope with low productivity, Kida (2006) suggest for these countries to do three things:. DOI:10.6814/THE.NCCU.IMPIS.016.2018.A06.