Editor’s Note: The below is an article reproduced from the International Monetary Fund on improving regional integration in the Caribbean.
According to the latest IMF research, further liberalising trade and labour mobility in the region can generate significant economic benefits—potentially over seven per cent of the region’s GDP (gross domestic product) in 2018.
While policymakers of the Caribbean Community (CARICOM) remain committed to further integration and progress has been made, the implementation of integration initiatives and policies toward the goal of a regional economic union has been slow and needs to be accelerated.
Work in progress
Compared to other well-integrated regions, like the ECCU and EU, the Caribbean lags. The integration indices, which measure the degree of intraregional economic and institutional integration, suggest that Caribbean community’s integration has proceeded in several waves, with periods of integration followed by slowdowns in progress, including in removing remaining tariff and non-tariff barriers to trade and constraints on intraregional labour movement.
Financial integration has proceeded faster with tightly-interconnected financial systems across the region, but capital markets remain underdeveloped and fragmented. Harmonizing economic and structural policies to support a single economic space is still work in progress, with lacking harmonisation and coordination of investment codes, tax incentives, and macroeconomic policies.
Why has progress in regional integration been slow for the Caribbean? A combination of institutional, political economy, and structural factors underlie the slower implementation of integration policies. The lack of a regional body with powers and accountability that can help transform community decisions to binding laws in individual jurisdictions is a key impediment. A decision-making process based on unanimity principle, where each member retains its sovereign authority, also hinders progress.
In the absence of a facilitating regional architecture, cooperation must rely on well-aligned national interests and shared goals, but national incentives do not seem to be well-aligned for integration, with its potential benefits perceived by some as uncertain, potentially uneven, and only materialising over a long horizon.
Differing export/production structures and income and development levels make it challenging to harmonise economic and structural policies around well-integrated policy frameworks. Some regional authorities attribute the slow pace of implementation to a “crisis of will,” as much as to wasteful duplication and slow progress in harmonising legal and institutional frameworks and to binding resource/capacity gaps.
A worthwhile goal
The Caribbean authorities broadly agree that integration should remain a top priority and greater collaboration is critical to tackle common challenges. It is important to capitalise on this momentum. Recent IMF research finds that further liberalisation of trade and greater labour mobility within the region can generate significant benefits.
A 25-per cent reduction in non-tariff barriers and trade costs within CARICOM and vis-à-vis non-CARICOM trade partners can boost trade and improve welfare gain for all members—at about $6 billion, or 7.6 per cent of the region’s GDP in 2018. It can also help restructure economies from contracting to expanding sectors, resulting in a net employment gain across the region.
Greater co-operation is the key to furthering regional integration in the Caribbean. While these economies’ small size and supply constraints may potentially limit benefits from economic integration, acting as a group can enhance the scale, bringing widespread benefits and helping the region further tap into global value chains. That is, regional integration should not be an end-goal, but a means to an end of deepening Caribbean integration into the global economy.
At a time when momentum for economic integration seems to have stalled, close cooperation in high priority areas for the region can help demonstrate benefits of coordinated action and serve as a building block to the ultimate goal of full integration.
Key areas could include:
— By Ding Ding and Inci Otker