econ2020-study guide

special case of guyana

high gdp growth rate - signficant economic growth, projected gdp of 415% in 2024

oil boom - substantial foreing investment and boost in overall economic activity

positive spillover effects on other sectors - construction, services ifnrastructure development

challenges managing economic benefits equitably, sustainable development, environmental impacts

girvan

defines caribbean through disparities in size, population, per capita income

insular caribbean

higher per capita income than greater caribbean - bahamas, greater antilles (cuba, dr, haiti, jamaica, pr), lesser antilles

CARICOM

angliphone countries, there are 20 (15 are member states) - Antigua, Barbuda, bahamas, barbados, belize, dominica, jamaica, grenada, guyana, haiti, monserrat, saint kitts and nevis, saint vincent, saint lucia, suriname, trinidadCa

cariforum

caribbean forum - platform for economic dialogue with the EU through the economic partnership agreement (EPA), signatories to the lome convention, includes CARICOM, haiti, dr

ACS

entire basin - association of caribbean states, regional collaboration through trade, disaster response, sustainable development c

CCJ

caribbean court of justice - highest appellate court in the Caribbean, established to replace the Privy Council as the final court of appeal for CARICOM member states.

CDCC

Caribbean Development and Cooperation Committee - a regional entity focusing on economic and social development in the Caribbean - dependent territories dont belong to above orgs but are members of CDCC, majority basin states, insular caribbean and coastal countries, promoting cooperation on poverty alleviation and sustainable development.

OECS

organization of eastern caribbean states - created in 1981 under Treatey of Basseterre, aims to find economic harmonization and joint policies in trade, foreign relations, defense for small eastern caribbean islands, shares common currency and single economic space

blue economy

sustainable use of ocean resources, economic diversification, preserving regions environment

pantin and attzs

believed current and projected economic problems of caribbean cannot be fully comprehended without an appreciation of the historical evolution of these economies

common legacy

economic history is that of plantation slavery together with endentureship at end of slave trade and subsequent abolition of slavery

dependence on natural resources for generation of export earnings

economies dominated by export sectors - concentrated on 1-3 products based on regions natural resource endowment, commodity exporters vs service intensive providers

offshore services (sector of significant growth)

activities that reach across different country than the home country, often to take advantage of lower labor costs and tax benefits.

export processing zones (EPZ)

areas designated for manufacturing and export of goods, often with special tax incentives and reduced regulations to attract foreign investment.

information processing (sectors of significant growth)

increases in employment sector

exported labor

remittances by caribbean population living abroad

St. Cyr parameters

location and insular configuration - proximity to worlds most developed economic system

strategic location between north and south america

all relatively small island masses, lack contact with contigous regions because of language, infrastructure, economic relations and geographic isolation from larger markets.

moyne comission report

anlgophone caribbean up to 1950s, caribbean countries best off economically by specialising in tropical agricultural staples for export to metropolitan markets - challenged by WA Lewis

Best and Levitt on plantation economy

incapacity to fully mobilise domestic savings in time of boom and to direct them towards investment with high long run potential

St Cyr hypothesis (6) on need for astute economic management

(1) closure of economy results in stagnation or socio-cultural an dpolitical decline - small size, limited markets, skewed resources, absence of production economies, high import content of investment

(2) boom in export staple production brings economic prosperity - booms are exogenous to caribbean, high income generated in boom creates high demand for imports rather than expanded domestic output, can destroy domestic productive capacity

(3) Central conflict in caribbean economies production for export and production for home use, social economy of caribbean, allocation of resources between export and residentieary production determines total factor productivity, structural unemployment related to secular upward pressures on capital/labour ratios in export production, starves residentiary activity of capital, reduces labour content of exports, bias to income distribution

(4) inherent conflicts between export sector and residentiary sector must be addressed by policy initiatives if broad based economic performance is to be achieved - policy mix to take account of needs of both sectors, policy package take account of global repurcussions

(5) foreign exchange earnings to economic prosperity and stability of caribbean economic performance makes it imperative passive incorporation in world economy be changed to active participation, appreciation of modus operandi of changing world economy and reorganization of export sector

(6) residentiary sector geared to production of culturally determiined goods and non-tradeables may need to shift to producing services (arts, sports, national festival) - clear labour market and spillover into foreign exchange earnings through expanded. tourist industry

typology of economic systems and limitations of special case, Seers

economic texts treat teaching of economics as universally valid, not taking into account the pecularities of some societies

(special case, developed countries; typical case, developing countries)

Keynes general theory - derived from simply looking at a few countreis with highly unusual or peculiar circumstances

keynes general theory

demand driven economy - aggregate demand is primary diver of economic output and employment, when demand is low, businesses cut production and jobs, leading to recessions

government intervention - times of economic downturn, governments should increase public spending and lower taxes to stimulate demand and employment, fiscal stimulus

multiplier effect - initial increase in spending leads to larger increase in economic activity, money circulates through economy

liquidity preference and interest rates - people prefer to hold money (liquidity) an dinterest rates are determined by this preference along with money supply, low interst rates can encourage invemtsnet but are not always sufficient to revive a weak economy

challenges in applying keynesian economics to developing countries

structural constraints reduce effectiveness - lack of strong industrial bases, increased demand lead to higher imports rather than local production expansion

inflation risks are higher - increased gov spending may lead to inflation rather than sustainable growth

debt and fiscal constraints - high debt levels and cannot easily afford large scale stimulus spending

factors of production (special case)

labour - highly literate and mobile, highly organized, racial, religious, and linguistic differences not sufficiently important to break up labour supply, substantial quantities of skilled and professional workers

land - most available land cultivated by private owners in plots of economic size

capital - all sectors heavily capitalised with spare capacity

enterprise - wide field for entrepreneurs

sectors of the economy (special case)

agriculture - wholly commercial and flexible in response to price changes and technical advances, foreign ownership rare

manufacturing - diversified, large metal using industry producing machinery and vehicles

manufacturing is dominant sector

foreign trade (special case)

exports - several products where there is large internal market and income and price elasticities are xports sold to many countries

imports - consist of primary products

long term capital flows

dynamic influences (special case)

trade - no chronic tendency to deficits

growth of population slow

aspirations - envy of foreign living standards not high as source of discontent

characteristics of typical case

social structure, feudal land systems (owned by heirs), conventional work pracitces, existence of foreign firms, disparities between regions, racial barriers, etc p

problematique of mechanism of OPE

paradoxes - real positive economic growth alongside poverty and unempoloyment, unemployment alongside high wages

contrasts from keynesian type ecoomy where GDP is proxy for employment and income

characteristics of the mechanism of OPE (MOPE)

based on case of venezuela 1958 - based on petroleum exports

exports consist of petroleum, profitable, gov revenue is financed from petroleume reveunes, companies are all foreing owned growing output linked to increases in price and/or output of oil

employment in petroleum sector only around 5% of total employment - highly capital intensive

second main source of employment is gov around 30-40% - gov revenue depends on tax revenues from oil, gov ability to employ is dependent on tax revenue earned

Seers’ conclusion

OPE akin to a time bomb (venezuela example), wealth that accrues in petroleum sector si not distributed to majority of pop;ulation, inequitable distribution of income

policy conclusion:

• minerals can be depleted in use, belong to all, are commodities, subject to boom and bust cycles, save and invest in diversified economies away from mineral investments

• review sustaniable development of the petroleum sector, inter and intra generation needs

• craft economic policy to suit pecularities of circumstances

  • mineral based economies have to capitalise on rents accrued from non renewable resources and invest to create equity policies should aim to ensure equitable distribution of mineral wealth, promote diversification of the economy, and consider long-term sustainability.

specific policy changes for OPE

nationalization of foreign oil companies - foreing companies have no desire to resist wage increases, strong trade union movement

foreign companies avoid attention - in politiclaly vulnerable position, gov of Trinidad engaged in nationalization since 1969, purchased assets from Amoco, purchased a Shell plant, Texaco’s POint a Pierre refineries

wage control - trinidad gov bought into with introduction of industral stabilization act, industrial relations act

manage balance of payments - exchange rate policy or foreign sterilisation policy, depreciation can be used to reduce demand for imports in OPE which occurs when inflow of foreign exchange are monetized and used to import foreign goods - used to inhibit inflow of foreign exchange earnings from entering domestic money supply, trade restrictions and import substitution supporting agriculture and other producer goods

invest in human resource policy for non oil sector - manpower planning for non oil sector

invest in non oil exports - imiport substitution industralisation (ISI)

constraints to implementation of solutions for OPE

external:

international institutions: WTO (world trade org), IMF, IDB (inter american development bank) controlled by economically powerful countries, hostile to support discriminatory policies in our economies despite having some policies

transnational corporations (TNCs) obtain tax holidays in our economies, international institutions don’t like when tax holidays are given locally

internal:

economic ignorance, ignorant self interest, political system, confuse temporary windfalls in income for permanent income, people aware of economic issues only consider their own welfare, political caribbean system reinforces economic ignorance and ignorant self interest

OPE can manifest itself as mono crop of dependence on one sector

rentier state definition

any state that derives a substantial part of revenue from foreign sources and under the form of rent

rent

financial income not matched by a corresponding labour investment c

characteristics of rentier economies

• rents come from abroad, accrue to government directly, only few are engagedin generation of rent, majority only involved in distribution or utilization

• resource exports distort and crowd out productive economic activities in other sectors of economy

• disguised economic and social problems, elites in society become aware of only in downturn in economy

• linked with corruption - exploit current opportunities to manipulate existing institutional framework so in future serves private interest

  • corruption present if illegal financial benefits are used for rent seeking - Corrpution Perception Index(CPI)

rent seeking behavior

(economic) avoids competitive behavior or market pressure to bring price distortions in ones own interest

(political) behavior that involves lobbying perceived superior regulatory bodies

environments for rent seeking in developing countries

• political leaders have to focus on political survival

• material advancement in exchange for political loyalty and support

• segmented societies with highly structured groups and units, divisions along ethnicity, religion, family associations, more prone to rent seeking

  • political leadership finds it easier to exploit groups in competition with each other for rents

interventions for rent seeking

• modify national accounts to measure genuine savings

• investment of economic rents to facilitate both inter and intra generational equity

• diversifying economy from dependence on rents, resource and non resource based

  • macro economic policy - monetary policy should seek to sterilize rents in periods of temporary windfall export earnings

constitutional reform against rentier states

transparency - state funding of legitimate political parties to fund normal poltiical operations, less offsetting deductions for private contributions

• public registrar of private funding of parties by individuals and corporate bodies, enable any citizen to request a current copy of all contributions

• restrictions on ability of major party contributors to hold public office or receive contracts from the state

• limits on share holding of single business groups, conglomerates

accountability - table all economic information in parliament including treaties and contracts entered into state and society

plantation economy model hypothesis

legacy represents an endowment of mechanisms of economic adjustment which deprive the region of internal dynamics - patterns of income distribution and disposal that discriminate against transformation

plantation economy model operationalisation

relationship between the hinterland and the metropole was mercantilist (economic nationalism that sought to increase prosperity and power of a nation through restrictive trade practices

hinterlands - settlement, conquest, exploitation

hinterland economy comprised of single sector fractured into plantations, self contained, total institution with little to no interaction with other sectors, leading to dependency on a few crops and lack of economic diversification.

metropole (colonial power)

hinterlands of conquest: large domestic population, exploited for mineral wealth (central and south america)

hinterlands of settlement: small populations, migrant settlers (aus, us canada, new zealand)

hinterlands of exploitation: plantation economy (caribbean, mauritius)

rules of game

inter caetera: areas which metropole had influence and set limits on the extent to hinterland entering in relationships with countries other than metropole - limitations of external intercourse for hinterland; in 1493 by Pope of the time, divided newly discovered lands outside Europe between Spain and Portugal, set stage for colonial control over Caribbean and exploitation of resources

Muscovado bias: international division of labour between metropole and hinterland - restricted to terminal activity - primary production, crude oil proecessing or assembly, metropole left to create lion share of value added; trade preference system favoring raw muscovado sugar from British colonies, sugar economies heavily depended on British markets, reinforcing colonial dependence and economic monoculture

navigation provision: modes of transportation belonged to or were determined by metropole

imperial preference: trade executed on a preferential exchange biasis between metropole and colony (hinterland output only sold in metropolitan markets)

metropolitan exchange standard: use of metropolitan financial intermediaries in hinterland and maintenance of free convertability between currencies of both

periods of plantation economy

(1) pure plantation economy, ppe, beginning of slavery to 1834

(2) plantation economy modified, pem, emancipation 1838-1920

• workers in mature plantations paid wages below wage rate, new plantations ability for individuals to own land discouraged, indentured labourers brought to war (trinidad, suriname, mauritius, guyana)

  • inter regnum (1930-1950) great depression and WWII, trade difficult to finance overall decrease in income throughout the world, rise in organised labour and trade union movvement developing through caribbean; loss of access to income increase in production in residentiary sector, more food grown locally, growth in domestic sector, reduced dependence on imports, craft industry improved as people needed items repaired, local boom

    (3) plantation economy further modified, pefm, 1950s-present - metropolitan economies and plantation economy returend to status quo, residentiary sector marginalized, imperial power regained influence, import substituting industralisation (ISI) implemented in 1950s along with fiscal trade incentives

import substituting industralisation (isi)

implemented in 1950s along with fiscal trade incentives

G Beckford, Plantation Economy System

persistence of underdevelopment in plantation economies, nature of system itself - transformation economically requires radical change in institutional structure

system denies majority of people on plantation real stake in their country, legacy of dependence, decision making made out of plantation system

requires destruction of plantation system to secure economic, social, political, psychological advancement

changes to plantation economy system

regional economic integration - increase size of market in plantation economy for feasible industry allied to plantation production, processing shipping, engineering, etc.

open production possibilities in plantation economy for resource combination and export substitution

integration of research and knowledge related to plantation associated industry - increase knowledge of possibilities and new uses of products, techniques of processing

regional groupings have to include other third world country other than plantation economies

land reform and income redistribution essential to development, low incomes of most people limit size of market and restricts domestic savings and investment

effective land reform includes appropriate rural economic institutions to provide credit, technical knowledge, etc

globalisation as new mercantilism

developing countries urged to compete in global markets

Lloyd Best

features - economies are externally propelled and specialized in the production and export of staple commodities

distinguishes between offshore and onshore sectors - part of economy dominant firms are overseas corporations with branches located in country, otherwise not linked to rest of economy for supply of inputs or disposal of outputs; onshore sectors typical firm is indigenous in initiative, enterprise, technology, and capitalization, organically interrelated to rest of domestic economy

distinction between economies of redistribution (seek to share income already produced rather than enhance generation of income) and economies of reciprocity, market economies

trinidad macroeconomy - possessives two productive sectors

• offshor, motor or engine

  • inshore, trailer gov expenditure of revenue and redistirubtion of income harvested offshore through taxation

development economics

attempted to change by describing conditions more as they have been in poorly functioning economies

TTEITI

trinidad and tobago extractive industries transparency initiative as of 2011

as an ISO for transparency, collective governance, tripartite consensus building

regional leader in implementation, reconciliation of earnings from sectors, capacity building and sensitization, research policy analysis and systems, published beneficial ownership register

EITI data reveals GDP volatility due to extractive sector dependence, emphasizes need for effective revenue management policies

export oriented industralization, Lewis

reasons for high levels of unemployment and poverty in islands - specialization in primary production, based on land intensive agricultural production, primary produce exported, low YED for exported products (low demand, low price), share of population living in poverty, significant illiteracy

strategy proporsed:

diversify into labour intensive production for high YED export, lack of knowledge on manufacturing sector, marketing, low levels of savings

invite foreign investors to bring knowledge and savings for access to savings; regional IDC, promote region, customs union harmonize trade policy, political federation

export orientedi ndustralisation, Lewis, strategy proposed

diversify into labour intensive production for high YED export, lack of knowledge on manufacturing sector, marketing, low levels of savings

invite foreign investors to bring knowledge and savings for access to savings; regional IDC, promote region, customs union harmonize trade policy, political federation

export oriented industralisation, Lewis, policy instruments

industrial policy - identification/selection of industries that hold promise, establishment of a regional trade and development agency

trade and commercial policy - establishment of customs union to guarantee a minimum economies of scale for production and initial market demand, political federation, strategic alliances with existing suppliers who have established linkages with LAmerica

fiscal policy - getting foreign investors included in use of fiscal incentives such as tax holidays, exemptions, subsidies, and provision of industrial centres

monetary and financial policy - creation of industrial development bank as lender of last resort after foreing capital courted

four measures of industrial development

(1) exchange rate policy - devaluation of currency could reduce costs of exports in terms of world prices, more competitive in international markets - expansion of foreign demand, increasing domestic income and employment

(2) incomes policy - reducing price level by cutting wages, salaries, profit, rents, other incomes same effects as devaluation, expanded production, reduced imports, balanced payments, increased employment

(3) productivity increase - agriculture sector especially, lead to higher incomes, greater proportion of spending on manufactured goods, stimulate industrial development create employment opportunities

(4)direct promotion of manufacturing activities - rrestriction of imports, focus on increasing production for domestic consumption, encourage growth of domestic industries, reduce reliance on imported goods

hindered industrial development

colonial economic policy - during british rule prioritized agricultural production

lack of resources - region seen as lacking raw materials, capital, industrial skills

limited market size - small domestic regional markets in caribbean considered insufficient to support industrial development

risk aversion - capitalists risk averse and preferred the distributive trades, protected agricultural production over manufacturing for export

lack of capital - level of savings insufficient to meet industralisation needs of region, required foreign investment

limited linkages - manufacturing sector had weak intersectoral, intrasectoral linkages, high import lack of backward and forward linkages

anti export bias - industrial policy focused on import substitution and domestic market, hindering development of export oriented industries

lack of regional integration - not fully embrace regional industrial programming and enterprise regime, limiting development

underdeveloped indigenous industrial class

West indian federation (WIF)

political integration began in 1958, lasted 5 yearsC

CARIFTA, caribbean free trade association

1965 encouraged free trade among members, growth development, regional competitiveness

CARICOM single market and economy, CSME

achieve sustained economic development based on international competitiveness, coordinated economic and foreign policies

improved living standards, full employment, regional economic development, expansion of trade and relations, increase production and international competitiveness

15 members - antigua, barbuda, bahamas, barbados, belize, dominica, grenada, guyana, haiti, jamaica, montserrat, st kitts, st lucia, st vincent, suriname, trinidad - economic integration

CARICOM ‘25 by 2025

launched to reduce caribbean regions food import bill by 25% by 2025, focused on boosting local agricluture, food security, and regional self sufficiency, encourages investment in farming, tech, trade reforms

diaspora

migrants maintaining strong sentimental and economic ties with homeland, ethnic minority groups of migrants origins residing and acting host countries but maintatining links with countries of origin

countries dependent on remittances and source

dr, jamaica, haiti, guyana

source: usa, canada, uk m

motives for remittances

pure altruism - migrants supporting family welfare back home

self interest - securing family assets, preparing for return

implicit family contract - repayment of familys investment in education or training

linked to educational attainment u

uses and impacts for remittances

daily expenses, savings, education, housing

developmental contributions: improved living standards, reduced poverty, inequality, increased local savings, suporting domestic investments and small businesses

jamaica case study

sources - usa, uk, canada, cayman islands

seasonal peaks - december, august

shift from commercial banks to remittances companies due to speed, convenience, accessibility

40% of small business startup capital from remittances

policy implications of remittances

importance of integrated approach, enhance efficiency reliability and reduce cost of transfers, develop innovative financial products to maximise investment potential of remittance flows, encourage policies that amplify positive impacts on socioeconomic development in caribbean econ

economic vulnerability in caribbean

high debt to gdp ratio and limited fiscal space

reliance on tourism, agriculture, and imported energy

frequent exposure to natural disasters, climate impacts

economic diversification to build resilience and sustainability

green economy

sustainability, environment protection, renewable energy; clean tech, sustainable agriculture, reduce environmental risks, ecological scarcity, low carbon growth, green jobs, resource efficiency, resilience against climate change, high initial investment, technological adaption, policy alignment (solar wind farms, recycling, green transport)

blue economy

sustainable use of ocean and marine resources, fisheries, marine toursim, shipping, renewable ocean energy, protect marine biodiversity, sustanibale coastal development, ocean based employment, marine based economic growth, coastal community resilience, marine ecosystem vulnerability, climate change impacts, governance complexity, fishing, eco tourism, offshore wind farms

orange economy

creative cultural industries, innovation, intellectual property, arts, entertainment, media, design, cultural heritage, foster creativity, innovation, economic diversification, job creation in creative sector, cultural exports, intellectual property protection, market volatility, film industry, music production, design services

article iv consultations by the IMF

annual assessments conducted by IMF on countries economic health, staff visits country to review financial systems, economic performance, and policies; provide advice on macroeconomic stability, fiscal management, inflation control, growth promotion

economic liberalisation

reduction in gov regulations in economy in exchange for greater participation by private entities

trade liberalisation, fiscal reform, financial liberalisation, exchange rate policy, divestment of public enterprises

government failures, Krueger

supposed to provide social overhead capital or infrastructure to facilitate economic development, undertake activities that compensate for market failures, lead role in allocating investment

market failures

market not in equilibrium and shortages or surpluses, gov intervenes to correct for problems that may exist in free market system of perfectly competitive system failures in allocating investment

failures of commission, market

high cost public sector enterprises, engaged in variety of manufacturing and other economic activities not associated with public sector traditionally

failures of omission, market

deterioration of transport and communications facilities, maintenance of fixed nominal exchange rates during domestic inflation, reinforced by exchange controls and import licensing, nominal interest rates below rate of inflation with credit rationing so governments could supervise credit allocation among competition

by product - corruption

trade liberalisation

replacement of quantitiative restrictions with tariffs, reduction of those to lower protection, reduction of variance across acitvities and increasing transparency of trade policy making

why caribbean countries turned to imf

assistance implementation of stabilisation and structural adjustment programs

measures like financial liberalisation - removing exchange controls, opening up capital accounts, trade liberalisation - reducing trade restrictions and promoting regional integration, privatization - shifting state owned enterprises to private ownership

timeline imf

1980s - economic reform started with guyana, jamaica, trinidad

1990s - accelerated adopting imf supported programs

mid 1990s - gove demonstrated firm commitment to trade liberalisation

common regional experiences with imf (barbados, guyana, trinidad)

emphasis on expenditure reduction over generation, public sector divestment, increased indirect taxes, fiscal restructuring, improved financial sector regulation post crisis

lessons: fiscal policy central to sustainable economic growth, necessity of clearn, supported exchange rate policies, importance of debt management and diversification

enhanced intra regional trade, increased vulnerability to external shocks due to openness and small economies, net benefits in efficiency, investment, resource allocation

hillaire

fiscal policy needs to be at core of macroeconomic policy framework, net spending a direct part of domestic absorption, under control of authorities, affects resources available for domestic investment

economy wide income restraint is desirable for adjustment and external competitiveness

monetary policy supported by fiscal not to be overburdened as high interest rates adversely affect investment and growth and weaken fiscal position

exchange rate policy should be clear and supported by other policies, build credibility for adjustment program, actual choice of fixed or floating regime not important

public debt poses major constraints to adjustment programs by limiting room for maneuver of fiscal authorities, try to reduce burden of public debt

narrow output base makes countries vulnerable to external shocks, policies to help diversify countries range of production assist in reducing vulnerabilities

universal economic constants

savings, investments (FDI-foreign direct investment), production (exported outside caribbean), consumption (imported from outside the caribbean)

in macroeconomics these economic activities take place in a circular flow of income