A study of post-2008 growth in Caribbean small island states

Abstract

This study analyses the pattern of economic growth following the 2008 crisis in nine Caribbean small island states, focusing on their recovery from the initial economic shock. The paper tests two main hypothesis, the first of which is that all the nine small states under

consideration experienced a marked fall in GDP growth in 2009 and that after the 2009 set- back, some of the nine Caribbean states recovered markedly better than others. This

hypothesis is tested through the use of charts and graphs plotting each nation’s gross domestic product per capita. The second hypothesis is that GDP growth in these small states was influenced by a number of selected variables, including natural disaster damage, trade openness and public debt. To test this second hypothesis a fixed effects panel data analysis was conducted. As expected, debt as a ratio of GDP as well as disaster damage were found to have a negative effect on growth. Surprisingly, trade openness was also found to adversely affect economic growth efforts. It is argued that On the one hand such openness stimulates countries to pursue competitiveness and benefit from comparative advantage, but at the same time, such openness render countries highly exposed to external shocks. The findings relating to trade openness shed light on the issue as to whether or not trade openness is desirable