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Impact of Structural Characteristics of Caribbean Economies
Transcript of Impact of Structural Characteristics of Caribbean Economies
Dependence on Aid , Preferential trade AGreements , Foreign Direct Investment
An Economics Presentation by Chelsea Sinanan, Karina Mulchan and Saisha Rattan
Preferential Trade Agreements
A trade pact between countries that reduces tariffs for certain products to the countries who sign the agreement. While tariffs are not necessarily eliminated, they are lower than countries not party to the agreement. It is a form of economic integration.
A trading bloc that gives preferential access to certain products from the participating countries. This is done by reducing tariffs but not abolishing them completely. A PTA can be established through a trade pact. It is th first stage of economic integration.
Within the Caribbean our form of economic integration is a free trade area formerly known as CARIFTA (Caribbean Free Trade Agreement) and presently known as CARICOM (Caribbean Community) . Specifically CARIFTA was intended to encourage balanced development of the region by:
Increasing trade- buying and selling goods among member states
Diversifying trade- expanding the variety of goods and services available for trade
Liberalizing trade- removing tariffs and quotas on goods produced and traded within the area
Ensuring fair competition- setting up rules for all members to follow to protect the smaller enterprises
Foreign Direct investment
Foreign Direct Investment
refers to investment from one country into another (normally by companies rather than governments) that involves establishing operations or acquiring tangible assets, including stakes in other businesses.
Foreign direct investment can potentially foster sustainable development. It represents an increasingly important source of external finance for developing countries and can lead to increases in domestic capital stock, employment, technology and skills training. The characteristics of the host country are very important in determining the extent to which FDI will be beneficial.
The following characteristics of Caribbean economies may affect the effect of FDI:
Low level of law enforcement, missing political and institutional stability, corruption and poor infrastructure can dampen growth enhancing effects of FDI and can discourage foreign investment.
Small market size- local businesses may be driven out of market by foreign businesses with lower production costs.
Level of inflation- High or fluctuating levels of inflation may deter foreign investment
Dependence on aid
Explained using the example of Jamaica...
Over the next two decades the situation swiftly deteriorated, as a direct result of these policies. Subsequent governments, the second Manley administration (1989-1992) and the following PNP administration under PJ Paterson (1992-2006), had little choice but to continue the acceptance of loans, grants and 'development aid' as their means of developing internal structures to allow Jamaica to sustain its own economic growth. Jamaica was hindered by its history of dependance on the metropole (and it affiliate organisations and institutions) and was further exacerbated by growing public debt. ...
... "Beginning in 1991 with the signing of a structural adjustment package with the IMF, Jamaica undertook a rapid process of financial liberalzation" which amplified previous social issues with the loan being conditional on the reduction of social programs and the resultant lagging state regulation (as the structural adjustments were not a product of Jamaican innovation) lead to wde spread bankruptcies in the financial sector by 1994. Since then public debt which has crippled the economy and ensures there is no exit from IMF packages and aid, has increased dramatically. In 2000 it had reached a high of 80% of GDP. By 2006, Jamaica's savings, a good indicator of the actual condition on the ground in the country, had dropped to the lowest level since 1975, its GDP per capita growth was negative and its public debt had reached an astonishing 111% of GDP.
On shaky ground already, the global economic recession hit Jamaica particularly hard, with its currency depreciating by nearly 20% from September 2008 to February 2009, forcing it into another round of IMF loans and dependance on foreign assistance as the governments efforts to finance its own recovery were simply too small to counteract the large shocks to the system.
Recently, Jamaica's situation continues to deteriorate; in 2010, Jamaica's public debt was on the rise again, and the IMF has essentially taken full control of the country. Even after the negative shock of Tropical Storm