Caribbean regionalism and the expectation of increased trade: Insights from a time-series gravity model

Abstract

CARICOM's expectation that integration in the region promises economic gains by providing an avenue for increased regional and extra-regional trade has been criticized by many scholars. These criticisms receive mixed support from a limited sample of cross-sectional analysis with a general focus on the impact of integration on trade flows. Since much of the data in gravity models are time-dependent, and since CARICOM trade is and has been dominated by three nations, Barbados, Jamaica, and Trinidad/Tobago, I evaluate this expectation using a three dummy gravity model for each nation. The results concur with the descriptive ones; regional integration does not necessarily increase trade flows and may in some cases be associated with a decline. While Caribbean integration has provided numerous non-economic gains, the continued stress on trade is potentially problematic. Trade has had an unfortunate place in policy-making in the region as governments fluctuate between outright rejection to the current state of grudging acceptance of minimally restricted trade. Trade, while positively correlated with growth, is neither inherently good nor bad for developing countries as current debates seem to suggest. Instead, trade offers an opportunity for economic gains that is best realized within an environment that supports skilled resources, sound and credible government institutions, and technological development. Without these fundamentals, the pursuit of economic gains via regional integration will, likely, continue to disappoint.

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