Economic and Trade Impact of 9/11

• Author: Ransford W. Palmer
• Pages: 334-349

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Caribbean Security in the Age of Terror

Economic and Trade

Impact of 9/11

Ransford W. Palmer

Introduction

Caribbean economies are vulnerable to external shocks of all kinds

because they are extremely open. That is to say, their foreign trade in goods

and services accounts for a large share of their gross domestic product and

their exports are concentrated in one or two commodities. Over the last few

decades the region has had to face a series of external shocks of varying

severity. Among them were the oil shocks of the 1970s, which benefited the

oil producers and penalised the non-oil producers, the shock of falling

commodity prices in the 1980s, and the Asian financial shock of the 1990s.

On September 11, 2001, the terrorist attacks on America precipitated a whole

new era of security arrangements that gave a serious jolt to these small,

trade-dependent economies.

To set the stage, it is important to underscore the character of Caribbean

foreign trade, particularly its foreign trade with the United States. A significant

share of the region’s merchandise exports is primary products. For example,

Jamaica’s leading exports are bauxite and alumina while those for the small

Eastern Caribbean countries are bananas and other agricultural products.

Primary products are susceptible to sharp swings in market prices and they

often depend on preferential arrangements with major trading partners.

Furthermore, their vulnerability tends to be aggravated by the concentration

of their exports to one or two large markets such as the United States and the

European Union. The same is true for Caribbean tourism which is also

concentrated in these markets. The consequence is that shocks emanating

from them directly affect the welfare of Caribbean populations.

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Economic and Trade Impact of 9/11

Policies implemented by the major trading partners of the Caribbean to

protect their national interest often directly impinge on the national interest

of the Caribbean. As a result, Caribbean countries must react to these policies

in order to protect their own national interest. More often than not, the

Caribbean, usually after some initial resistance, winds up acceding to the

policies of their major trading partners in order to preserve access to their

markets. The Caribbean had no choice but to comply with the security

measures put in place by the United States in the aftermath of September 11.

Not to do so would have had far more negative consequences for its

international trade.

At this writing, it has been a little over a year since September 11, which

means that not enough time has elapsed for assessment of its long-term impact.

Despite this limitation, this chapter presents an analysis based on available

evidence with the caution that any economic assessment of the impact of 9/

11 is complicated by the fact that changes in the larger economic environment

that preceded 9/11 continue to affect economic conditions in the Caribbean.

An important part of the larger economic environment is the performance of

the United States economy which entered a recession in the first quarter of

2001. United States economic growth fell from an annual average of five per

cent to a little over two per cent while its unemployment rose to well over

five per cent from a low of four per cent in the boom years of the 1990s. It is

characteristic, in recessions, that the demand for luxury goods and services

declines simply because their consumption is easily postponed. Vacations

are in this category, especially those that require foreign travel. Consequently,

Caribbean tourist destinations are the first to feel the effect of a US recession.

There is also a spillover from ongoing social problems in some Caribbean

countries that continue to have a negative effect on the demand for tourism.

The rising crime rate in Jamaica is often cited as an example. September 11

aggravated these situations. The closing of US air space and the subsequent

imposition of new security measures severely reduced the demand for air

travel. Because air transportation is the life blood of Caribbean tourism and

because tourism accounts for a significant share of the region’s economic

activity, the decline in air travel had a directly negative effect on the economic

performance of the region.