Characteristics of Caribbean Economies
The Caribbean region comprises of about fifteen (15) relatively small territories. These territories have certain unique characteristics. The following are some of the main characteristics of Caribbean economies which make them unique as compared to other countries.
Smallness - There seems to be varying definitions of a small economy. The commonwealth uses 1.5 million as its definition of a small economy. Using this 1.5 million as the threshold for a small country, besides Haiti, Jamaica, the Dominican Republic and Cuba, all Caribbean countries fall into this category of being small. It has been shown that smallness in size of economies creates unique economic management problems.
Lack of Natural Resource - Most of the Caribbean countries lack natural resources which they can tap into to be competitive.
Open Economies - The countries of the Caribbean are open economies since they rely heavily on international trade with other countries of the world. As a result, they are vulnerable to external shocks. This can be a setback for such economies. These small countries are not as competitive as larger countries and so many of them often need protection for their local industries. The openness of these economies has become an even bigger problem since the establishment of the World Trade Organization (WTO) that fosters and encourages free trade where it has become almost illegal for countries to implement trade protectionism measures in order to be competitive.
Economic structure - Economic structure is also another very important characteristic that can determine the state of development of a country. In terms of the countries of the Caribbean, they depend substantially on primary sector production such as basic agriculture including food production These are fairly unstable due to hurricanes and flooding which often negatively affect the production of these countries as well as their foreign exchange earnings.
Major Economic Problem in the Caribbean
Due to the characteristics of Caribbean countries, there are associated problems which these countries encounter which can affect their development. Some of these are as follows:
External Shocks - Caribbean countries are also prone to external shocks in that their economies are linked to those of other countries. When incomes from these countries rise, the demand for products and services from Caribbean countries will tend to also rise and vice versa.
Brain Drain - The term brain train refers to the situation where highly skilled people from Caribbean countries migrate to the income-rich developed countries seeking better opportunities.
Limited Range of Products - Caribbean countries produce a limited range of products and services. The effect of this is that these economies rely on a limited or narrow source of income.
Nature of production - Most Caribbean territories do not tend to venture or graduate to the secondary or even the tertiary level of production except that of tourism. Most of these economies lack the ability to transform their economies from developing country status to emerging economy status.
Reliance on Preferential Trade Arrangements - Caribbean countries have greatly relied on preferential trade agreement through trading blocs for their economic growth and development. However, the emergence of the World Trade Organization (WTO) would have prevented this to some extent.
Unemployment - The lack adequate skills that are required for the new industrial trend, for example, information technology skills have also contributed to the problem of unemployment.
Debt burden - Many Caribbean countries have high debt- to-GDP ratios.
Solutions to Economic Problems in the Caribbean
Even though there are challenges faced by Caribbean economies, all are not lost as there are some measures that can be adopted by these countries to address some of these challenges. Some of these measures are as follows:
Foreign Direct Investments
Foreign direct investments (FDI) are very important for the development of developing countries including the Caribbean countries. FDIs can provide firms with new markets and marketing channels, cheaper production facilities, access to new technology, products, skills and financing.
Special Investment in Human Resources
The Caribbean has a problem with brain drain which is the situation where highly skilled people migrate to the income-rich developed countries seeking better opportunities. This trend will tend to keep Caribbean countries at a low level of economic development. Therefore, governments of Caribbean countries need to invest heavily with special incentives to make these professionals remain in the country.
Linked to the topic of reliance on the primary sector is the fact that Caribbean countries produce a limited range of products and services. Caribbean countries need to gradually move away from the primary sector and more towards developing a manufacturing sector or some level of it. In terms of agriculture, these economies need to venture into more dairy-type products instead of the pure and basic crops.
Rely more on Regional Trade Agreements
Caribbean countries have greatly relied on preferential trade agreements and arrangements through trading blocs for their economic growth and development. However, the establishment of the World Trade Organization (WTO) would have hampered the effective functioning of these agreements and arrangements to the detriment of Caribbean countries. The response by Caribbean countries should be to rely more on Caricom and increase trade with each other for the benefit of all Caricom members.
Foreign Direct Investments
Foreign direct investment (FDI) is defined as a company from one country making a physical investment in another country. Foreign direct investment plays an extraordinary and growing role in global business. It can provide a firm with new markets and marketing channels, cheaper production facilities, access to new technology, products, skills and financing. For a host country which receives the investment, it can be provided with a source of new technologies, capital, processes, products, organizational and management skills, and as such, can provide a strong impetus to economic development. All of these are very important for the economic development of developing countries such as Caribbean countries.
Foreign direct investments (FDI), especially those of multinational corporations (MNC), take shape through the transfer of modern technology including machinery, technical and managerial assistance. All this make the direct foreign investments an advantage for both the investing countries and host countries. The countries receiving foreign direct investments make effective use of available inputs and the creation of favourable conditions towards the development of their productive capacity for export. The most effective method of foreign direct investments is through MNCs.