Caribbean Economic Integration: What Is Happening Now, What Needs to Be Done

• Author: Dr. Trevor Farrell
• Pages: 113-143

113

Caribbean Economic Integration

CARIBBEAN ECONOMIC

INTEGRATION: What Is Happening Now;

What Needs To Be Done

Dr Trevor Farrell

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77

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Introduction1

When CARICOM was born 30 years ago, its architects envisioned that

with the failure of political integration, economic integration along with

functional cooperation would become the centrepiece of the integration

movement. Economic integration was expected to centre around resource

and production integration, in which production operations would draw on

raw materials and intermediate inputs from different territories. The dream

that perhaps best captured this concept was the vision of metal working

industry based on aluminium production that was spawned from the marriage

of Jamaican and Guyanese bauxite with Trinidad and Tobago’s energy

resources.

It was recognized by some of the architects that the small domestic markets

of the region even when combined were unlikely to be a sufficiently large

market for regional industry to reap full economies of scale and become

competitive just producing for the regional market. In this context, resource

and production integration was seen as the foundation of an intra-regional

trade, the lattice work of which would then be knitted into an export platform

for selling Caribbean produced goods into international markets.

As it turned out however, intra-regional trade in the first couple of decades

of CARICOM’s existence turned out to be rather disappointing both in terms

of volume and in terms of how narrow the network of trading relationships

turned out to be. One country, Trinidad and Tobago, ended up dominating

114 CARICOM Options: Towards Full Integration Into the World Economy

intra-regional trade. Many countries in the region engaged in little trade

with others. By the early 1990s, after some 20 years of regional economic

integration, less than 7% of the region’s imports were sourced from within

the region.2

The 1990s

By the mid-1990s however, new developments in the area of economic

integration began to emerge. These took a form that had not been widely

anticipated and had not been planned for. Over the last ten or so years, we

have begun to see much more evidence of economic integration emerging

than in the previous 20 years.

The new developments are focused on four main areas:

(1) Intra-regional direct investment, and the concomitant emergence of

regional multinationals;

(2) Growth in intra-regional portfolio investment

(3) The growth and development of a regional capital market

(4) Regional firms beginning to make use of the offshore centres that

have appeared in all of the OECS states and in Barbados, adding to

the long time centres such as the Bahamas and the Cayman Islands.

The Growth and Spread of Intra-Regional Direct Investment

There are some firms, such as Goddards in Barbados, that for decades

now have been involved in operations outside of their home territories.

However, over the course of the last ten years, there has been a mushrooming

of cross-border direct investments in the region. The number of firms involved

has grown significantly, and the number of industries involved has also grown

significantly. Tables 1 and 2 set out the available data.

In table 1 below, we set out a list of 25 industries in which a preliminary

investigation found CARICOM firms to be involved in cross-border operations

within the region.3 It is clear that a wide range of activities are involved,

from banking to Carnivals, from tourism to fast foods. The largest investments

so far seem to have been in the area of financial services (particularly banking

and insurance), followed by tourism.

What are the key features of these direct investment flows? First of all,