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International finance and Caribbean development

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  • Brunton, P. Desmond
  • Kelsick, S. Valerie
Abstract
Introduction Globalization, defined as the international integration of markets in goods and services, is at the centre of the development process in the contemporary world and is an inescapable part of the external environment in which Caribbean 1 countries must exist. Global financial integration, the integration of the world's financial markets into a single global marketplace, is a subset of globalization. The developing countries of the Caribbean can ill afford to disregard the existence of this process. Indeed, advances in communications and recent developments in finance make the path toward financial integration unavoidable (World Bank, 1997). The real issue is not whether the Region should be part of this new age of global capital, but rather, how to proceed along the road to financial integration such that the considerable benefits could be realized and the significant pitfalls mitigated.Creating the right macroeconomic environment is a prerequisite for effective financial integration. But the small countries of the Caribbean also face peculiar constraints in attracting global capital. Small size and the associated structural inefficiencies, a limited natural resource base and high transportation costs to export markets, all reduce the relative attractiveness of many of the economies to international capital. In effect, these features make the Caribbean market for global funds inefficient. Providers of international capital find it difficult to adequately measure and allocate the risks. The imminent cessation of preferential trading arrangements, under which critical segments of the regional productive sector have operated, exacerbates the risk perceptions. A relatively broad consensus has emerged concerning the necessary conditions for successful financial integration. These include an appropriate macroeconomic framework, a liberalized trading environment so as to preclude large domestic price distortions, a sound and well regulated banking system and appropriate capital market infrastructure. It is the thesis of this paper, that in the small and very vulnerable countries of the Caribbean, these conditions are not sufficient to ensure financial integration. It is argued that in spite of the low and declining volume of official flows to the Region, such flows are critical in assisting these countries address risk perceptions and help to induce increased private flows. This paper examines the recent developments of international capital flows into the Caribbean. It first reviews the experience of the Region in the 1990s with respect to both official and private capital flows. The major determinants of the flows are then examined and the policy implications are identified. The impact of external flows on domestic savings is analyzed. Finally, the paper examines the accessibility of international capital markets to regional economies and the role the Caribbean Development Bank could play in facilitating such access.

Suggested Citation

  • Brunton, P. Desmond & Kelsick, S. Valerie, 2001. "International finance and Caribbean development," Financiamiento para el Desarrollo 5094, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).
    • Handle: RePEc:ecr:col035:5094
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    1. Guillermo A. Calvo & Leonardo Leiderman & Carmen M. Reinhart, 1996. "Inflows of Capital to Developing Countries in the 1990s," Journal of Economic Perspectives, American Economic Association, vol. 10(2), pages 123-139, Spring.
    2. Guillermo A. Calvo & Leonardo Leiderman & Carmen M. Reinhart, 1993. "Capital Inflows and Real Exchange Rate Appreciation in Latin America: The Role of External Factors," IMF Staff Papers, Palgrave Macmillan, vol. 40(1), pages 108-151, March.
    3. Sebastian Edwards, 1995. "Why are Saving Rates so Different Across Countries?: An International Comparative Analysis," NBER Working Papers 5097, National Bureau of Economic Research, Inc.
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    1. Fox, M. Louise & Palmer, Edward, 2001. "Pension reform in Europe in the 90's and lessons for Latin America," Financiamiento para el Desarrollo 5092, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).
    2. Guillermo Cruces & Quentin Wodon, 2007. "Risk-adjusted poverty in Argentina: measurement and determinants," Journal of Development Studies, Taylor & Francis Journals, vol. 43(7), pages 1189-1214.
    3. -, 2002. "Global economic developments, 2000-2001," Sede Subregional de la CEPAL para el Caribe (Estudios e Investigaciones) 27503, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).
    4. Cruces, Guillermo & Galiani, Sebastian, 2007. "Fertility and female labor supply in Latin America: New causal evidence," Labour Economics, Elsevier, vol. 14(3), pages 565-573, June.
    5. Palmer, Edward, 2006. "Public policy for pensions, health and sickness insurance: potential lessons from Sweden for Latin America," Financiamiento para el Desarrollo 5156, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).
    6. Macedo, Roberto B.M., 2003. "Macroeconomic volatility and social vulnerability in Brazil: the Cardoso government (1995-2002) and perspectives," Financiamiento para el Desarrollo 5113, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).
    7. Willmore, Larry, 2006. "Non-contributory pensions: Bolivia and Antigua in an international context," Financiamiento para el Desarrollo 5145, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).
    8. Titelman Kardonsky, Daniel & Calcagno, Alfredo Fernando & Manuelito, Sandra, 2003. "From hard-peg to hard landing?: recent experiences of Argentina and Ecuador," Financiamiento para el Desarrollo 5106, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).
    9. Paddison, Oliver, 2006. "Social security in the english-speaking Caribbean," Financiamiento para el Desarrollo 5152, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).

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