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Impact of Caricom Economic Integration Arrangements on the Economic Gains of Selected Caricom Countries

Permanent Link: http://ufdc.ufl.edu/UFE0021714/00001

Material Information

Title: Impact of Caricom Economic Integration Arrangements on the Economic Gains of Selected Caricom Countries
Physical Description: 1 online resource (219 p.)
Language: english
Creator: Gordon, Ronald M
Publisher: University of Florida
Place of Publication: Gainesville, Fla.
Publication Date: 2007

Subjects

Subjects / Keywords: capital, caricom, economic, gravity, policy
Food and Resource Economics -- Dissertations, Academic -- UF
Genre: Food and Resource Economics thesis, Ph.D.
bibliography   ( marcgt )
theses   ( marcgt )
government publication (state, provincial, terriorial, dependent)   ( marcgt )
born-digital   ( sobekcm )
Electronic Thesis or Dissertation

Notes

Abstract: The Caribbean Community (CARICOM) was formed in 1973, driven by inter-related political and economic considerations which were fuelled by the relatively small sizes of the respective members. Regionalism resulting from CARICOM was anticipated to provide greater scope for the economic growth of the countries. This study evaluates the extent to which the CARICOM policies contributed to the countries' economic gain by interviewing and surveying entrepreneurs and policy makers and by conducting trade and investment analyses. The study focuses on the countries of Dominica, Guyana, Jamaica, St. Lucia and Trinidad and Tobago as representative of CARICOM. The interviews of entrepreneurs and policy makers indicate that both groups considered CARICOM a good concept. However, in contrast to policy makers, entrepreneurs did not perceive CARICOM strengthening their business environment. The survey responses reveal considerable heterogeneity within the business environment of the five countries, particularly when the responses are examined by country, firm size or sub-sector of operation. Ordered probit econometric analysis of the survey responses was completed for four business variables: cost of capital, exchange rate, access to markets and availability of technology. The results indicate that national policy was perceived to have a statistically significant influence on each variable, for both the current business environment and future investment climate. CARICOM policy was seen to have a statistically significant influence only on the availability of technology in the current business environment. Most firms are only weakly optimistic about the contribution of CARICOM to their countries? economic gains. A gravity analysis of the trade flows between pairs of the countries over the period 1981-2005 indicates that countries experienced both trade creation, evidence of potential welfare gains and trade diversion, suggesting potential welfare losses. The analysis was inconclusive about net welfare gains. An ordinary least squares regression analysis of investment and productivity changes over the same period showed strong evidence of investment and capital stock formation. The research results suggest the need for a more inclusive CARICOM policy formulation process with respect to diversity in firms' and country circumstances.
General Note: In the series University of Florida Digital Collections.
General Note: Includes vita.
Bibliography: Includes bibliographical references.
Source of Description: Description based on online resource; title from PDF title page.
Source of Description: This bibliographic record is available under the Creative Commons CC0 public domain dedication. The University of Florida Libraries, as creator of this bibliographic record, has waived all rights to it worldwide under copyright law, including all related and neighboring rights, to the extent allowed by law.
Statement of Responsibility: by Ronald M Gordon.
Thesis: Thesis (Ph.D.)--University of Florida, 2007.
Local: Adviser: Vansickle, John J.
Electronic Access: RESTRICTED TO UF STUDENTS, STAFF, FACULTY, AND ON-CAMPUS USE UNTIL 2008-12-31

Record Information

Source Institution: UFRGP
Rights Management: Applicable rights reserved.
Classification: lcc - LD1780 2007
System ID: UFE0021714:00001

Permanent Link: http://ufdc.ufl.edu/UFE0021714/00001

Material Information

Title: Impact of Caricom Economic Integration Arrangements on the Economic Gains of Selected Caricom Countries
Physical Description: 1 online resource (219 p.)
Language: english
Creator: Gordon, Ronald M
Publisher: University of Florida
Place of Publication: Gainesville, Fla.
Publication Date: 2007

Subjects

Subjects / Keywords: capital, caricom, economic, gravity, policy
Food and Resource Economics -- Dissertations, Academic -- UF
Genre: Food and Resource Economics thesis, Ph.D.
bibliography   ( marcgt )
theses   ( marcgt )
government publication (state, provincial, terriorial, dependent)   ( marcgt )
born-digital   ( sobekcm )
Electronic Thesis or Dissertation

Notes

Abstract: The Caribbean Community (CARICOM) was formed in 1973, driven by inter-related political and economic considerations which were fuelled by the relatively small sizes of the respective members. Regionalism resulting from CARICOM was anticipated to provide greater scope for the economic growth of the countries. This study evaluates the extent to which the CARICOM policies contributed to the countries' economic gain by interviewing and surveying entrepreneurs and policy makers and by conducting trade and investment analyses. The study focuses on the countries of Dominica, Guyana, Jamaica, St. Lucia and Trinidad and Tobago as representative of CARICOM. The interviews of entrepreneurs and policy makers indicate that both groups considered CARICOM a good concept. However, in contrast to policy makers, entrepreneurs did not perceive CARICOM strengthening their business environment. The survey responses reveal considerable heterogeneity within the business environment of the five countries, particularly when the responses are examined by country, firm size or sub-sector of operation. Ordered probit econometric analysis of the survey responses was completed for four business variables: cost of capital, exchange rate, access to markets and availability of technology. The results indicate that national policy was perceived to have a statistically significant influence on each variable, for both the current business environment and future investment climate. CARICOM policy was seen to have a statistically significant influence only on the availability of technology in the current business environment. Most firms are only weakly optimistic about the contribution of CARICOM to their countries? economic gains. A gravity analysis of the trade flows between pairs of the countries over the period 1981-2005 indicates that countries experienced both trade creation, evidence of potential welfare gains and trade diversion, suggesting potential welfare losses. The analysis was inconclusive about net welfare gains. An ordinary least squares regression analysis of investment and productivity changes over the same period showed strong evidence of investment and capital stock formation. The research results suggest the need for a more inclusive CARICOM policy formulation process with respect to diversity in firms' and country circumstances.
General Note: In the series University of Florida Digital Collections.
General Note: Includes vita.
Bibliography: Includes bibliographical references.
Source of Description: Description based on online resource; title from PDF title page.
Source of Description: This bibliographic record is available under the Creative Commons CC0 public domain dedication. The University of Florida Libraries, as creator of this bibliographic record, has waived all rights to it worldwide under copyright law, including all related and neighboring rights, to the extent allowed by law.
Statement of Responsibility: by Ronald M Gordon.
Thesis: Thesis (Ph.D.)--University of Florida, 2007.
Local: Adviser: Vansickle, John J.
Electronic Access: RESTRICTED TO UF STUDENTS, STAFF, FACULTY, AND ON-CAMPUS USE UNTIL 2008-12-31

Record Information

Source Institution: UFRGP
Rights Management: Applicable rights reserved.
Classification: lcc - LD1780 2007
System ID: UFE0021714:00001


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1 IMPACT OF THE CARICOM ECONOMIC INTEGRATION ARRANGEMENTS ON THE ECONOMIC GAINS OF SELECTED CARICOM COUNTRIES By RONALD M. GORDON A DISSERTATION PRESENTED TO THE GRADUATE SCHOOL OF THE UNIVERSITY OF FLOR IDA IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE DEGREE OF DOCTOR OF PHILOSOPHY UNIVERSITY OF FLORIDA 2007

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2 2007 Ronald M. Gordon

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3 To my wife J. Patricia Gordon, my sons Jose ph and Sekou and my siblings who individually and collectively provided constant encouragement and invaluable support throughout this journey

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4 ACKNOWLEDGMENTS I was fortunate to have benefited from th e assistance and contribution of many people during the course of this projec t. Foremost among those is my advisor Dr. John J. VanSickle who, from the inception, was an outstanding mentor and sponsor. I also received considerable support from each of my committee members. Dr. Carlton G. Davis offered valuable guidance and input to the dissertation a nd timely support for some of the field research. Dr. Robert D. Emerson contributed invaluable in sight into the scope of the re search proposal and important direction on the empirical analyses undertake n. Drs.Terry L. McCoy and Thomas H. Spreen were continually supportiv e, both providing useful comments within their respective areas of competence. I wish to commend Dr. R. Jeffrey Burkhardt graduate coordinator and Ms Jessica Herman program assistant, of the Food and Resource Econ omics Department (FRED) of the University of Florida (UF), for their constant encouragement. In general, my contact with the faculty and staff of FRED enriched my resear ch experience. My gratitude is also extended to Dr. J.E. Ross, the International Agricultural Trade and Policy Center of UF, the Center for Latin American Studies of UF and the Caribbean Community (CARICOM) Secretariat for their respective contributions to the fundi ng of my field research. The scope of this project entailed my in teraction with former colleagues from the CARICOM Secretariat, The Inte r American Institute for Coope ration on Agriculture (IICA), the Organisation of Eastern Caribb ean States Export Development Unit (OECS/EDU) and numerous friends in the countries of my re search and studies. Their invaluab le assistance, especially with some of the logistics pertaining to the conduct of my fieldwork, is gr atefully acknowledged. I also benefited immensely from timely consultati ons with some of my colleagues including Max Grunbaum, Lurleen Walters and Betty Nyagode.

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5 I close with the acknowledgement of Gods cont inual guidance, particular with respect to keeping me in good health and unbounded apprec iation for the support offered throughout the period of this project by my wife Patricia, my sons Joseph and Sekou and the other members of my family.

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6 TABLE OF CONTENTS page ACKNOWLEDGMENTS...............................................................................................................4 LIST OF TABLES................................................................................................................. ..........9 LIST OF FIGURES................................................................................................................ .......12 ABSTRACT....................................................................................................................... ............16 CHAPTER 1 INTRODUCTION..................................................................................................................18 Background to the Caribbean Community.............................................................................18 Political Impetus..............................................................................................................18 Initial Economic Considerations.....................................................................................20 The West Indian Commission Review of the CARICOM Integration Arrangements...........21 A Recent World Bank Perspective on Caribbean Development............................................23 Some Current Perspectives of CARICOM.............................................................................24 Problem Statement and Research Questions..........................................................................27 Problem Statement...........................................................................................................27 Research Questions.........................................................................................................28 Objectives of the Study........................................................................................................ ...28 2 REVIEW OF LITERATURE AND METHODOLOGY.......................................................30 Regionalism in Context......................................................................................................... .30 Theoretical Considerations for Fr ee Trade Areas and Customs Unions................................34 Research Methodology, Analytics and Data..........................................................................39 Methodological and Anal ytical Procedures.....................................................................39 Static effects.............................................................................................................39 Dynamic effects........................................................................................................45 Surveys........................................................................................................................ ....48 Firms.........................................................................................................................49 Policy makers...........................................................................................................52 Field testing and survey administration...................................................................53 In-Person Interviews........................................................................................................54 Analysis of Survey Data..................................................................................................54 Firms.........................................................................................................................54 Policy makers...........................................................................................................56 Data........................................................................................................................... .......56 3 INTERVIEWS AND SURVEYS DATA ANALYSIS..........................................................62 Introduction................................................................................................................... ..........62

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7 Interviews..................................................................................................................... ..........62 Interviewees Profile.......................................................................................................62 Interview Responses........................................................................................................62 Firms Responses to the Supplementary Questions........................................................70 Policy Makers Responses to the Supplementary Questions..........................................71 Surveys........................................................................................................................ ...........74 Firms Characteristics......................................................................................................74 Policy Makers Demographics........................................................................................76 Firms Evaluation of Current Business Environment.....................................................77 Baseline view and perception of policy impacts......................................................77 Comparative evaluations..........................................................................................79 Evaluation of Investment Environment...........................................................................80 Baseline view and perception of national policy influence......................................80 CARICOMs influence on a desi rable investment climate......................................82 Supplemental Comments and Observations....................................................................83 Policy Makers Evaluation of Current Business Environment........................................85 Perception of policy impacts....................................................................................85 Comparative evaluations..........................................................................................87 Evaluation of investment environment....................................................................87 Overview of CARICOM policies potential impact on investment..........................89 Firms Disaggregated Perception of CARICOM Policies: Current Business Environment.................................................................................................................89 Country.....................................................................................................................89 Disaggregation by country: re the critical factors....................................................89 Disaggregation by country: re CARICOM policy areas..........................................91 Disaggregation by country: re co ntribution to economic gain.................................92 Firm size...................................................................................................................93 Disaggregation by firm size: re the critical factors..................................................93 Disaggregation by firm size: re CARICOM policy areas........................................94 Disaggregation by firm size: re contribution to economic gain...............................95 Sub-sector.................................................................................................................95 Disaggregation by sub-sector: re the critical factors................................................96 Disaggregation by sub-sector: re CARICOM policy areas......................................98 Disaggregation by sub-sector: re contribution to economic gain...........................100 Firms Disaggregated Perception of CARI COM Policies: Investment Environment...102 Country...................................................................................................................102 Disaggregation by country: re the critical factors..................................................102 Disaggregation by country: re CARICOM policy areas........................................103 Firm size.................................................................................................................103 Disaggregation by firm size: re the critical factors................................................103 Disaggregation by firm size: re CARICOM policy areas......................................104 Sub-sector...............................................................................................................104 Disaggregation by sub-sector: re the critical factors..............................................104 Disaggregation by sub-sector: re CARICOM policy areas....................................105 Econometric Analysis of Survey Responses........................................................................106 Implications................................................................................................................... .......107

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8 4 GRAVITY ANALYSIS OF INTER-COUNTRY TRADE..................................................164 Introduction................................................................................................................... ........164 Results........................................................................................................................ ...........165 Interpretation.................................................................................................................166 Implications...................................................................................................................168 5 INVESTMENT AND OUTPUT GROWTH ANALYSIS...................................................172 Introduction................................................................................................................... ........172 Investment.....................................................................................................................172 Output Growth...............................................................................................................173 Implications...................................................................................................................173 6 SUMMARY, IMPLICATIONS AND CONCLUSIONS.....................................................177 Summary........................................................................................................................ .......177 Interviews..................................................................................................................... .177 Firms Surveys...............................................................................................................178 Policy Makers Surveys.................................................................................................180 Firms Supplemental Comments and Observations......................................................181 Issues Pertinent to Surveys in General..........................................................................182 Trade and Investment Analysis.....................................................................................183 Implications................................................................................................................... .......184 Economic Gains from CARICOM Arrangements........................................................184 Dynamic Impact of CARICOM Arrangements.............................................................185 Perception of Firms and Policy Makers........................................................................185 Assessment of Impact of CARICOM Arrangements on Economic Gains....................187 Alternative Policies and Strategies................................................................................187 Research Timeline.........................................................................................................189 Conclusions.................................................................................................................... .......190 Limitations of the Research..................................................................................................193 Further Research............................................................................................................... ....194 APPENDIX SURVEY INSTRUMENTS....................................................................................195 LIST OF REFERENCES.............................................................................................................211 BIOGRAPHICAL SKETCH.......................................................................................................219

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9 LIST OF TABLES Table page 2-1 Gains from Trade under Unilateral Liberali zation and Free Trade Area (Country A and Country B)..................................................................................................................... ....61 2-2 Gains from Trade under Free Trade Area (Country A and Country C)..................................61 3-1 Distribution of entrepreneurs inte rviewed by country and firm type....................................138 3-2 Distribution of policy makers interv iewed by country and ministry type.............................139 3-3 Profile of country responses indicating impact of CARICOM policies on critical business factors............................................................................................................... .140 3-4 Profile of country responses i ndicating impact of CARICOM areas....................................140 3-5 Profile of firms responses indicating imp act of CARICOM policies on critical business factors........................................................................................................................ .......141 3-6 Profile of firms responses indica ting impact of CARI COM policy areas............................141 3-7 Profile of firms responses by sub-sector indicating impact of CARICOM policies on critical business factors....................................................................................................142 3-8 Profile of firms responses by sub-sector indicating impact of CARICOM policy areas.....143 3-9 Profile of firm responses by country indi cating perceived impact of CARICOM policies on critical factors pertaining to investment decisions......................................................144 3-10 Profile of firm responses by country in dicating perception of CARICOM policy areas influence on investment decisions...................................................................................144 3-11 Profile of firm responses by firm si ze indicating perceived impact of CARICOM policies on critical factors pert aining to investment decisions........................................145 3-12 Profile of firm responses by firm size indicating perception of CARICOM policy areas influence on investment decisions...................................................................................145 3-13 Profile of firm responses by sub-sector indicating pe rceived impact of CARICOM policies on critical factors pert aining to investment decisions........................................146 3-14 Profile of firm responses by sub-sect or indicating perception of CARICOM policy areas influence on investment decisions..........................................................................147 3-15 Univariate statistics for the cost of capital variable.............................................................148

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10 3-16 Ordered probit regression results for policy influences on the business environment of selected CARICOM countries for the variable cost of capital........................................149 3-17 Univariate statistics for the exchange rate variable.............................................................150 3-18 Ordered probit regression results for policy influences on the business environment of selected CARICOM countries for the va riable availabili ty of technology......................151 3-19 Univariate statistics for the availability of technol ogy variable: current business environment.................................................................................................................... .152 3-20 Ordered probit regression results for policy influences on the business environment of selected CARICOM countries for the va riable availabili ty of technology......................153 3-21 Univariate statistic s for the access to markets variable: current business environment......154 3-22 Ordered probit regression results for policy influences on the business environment of selected CARICOM countries for the variable access to markets...................................155 3-23 Univariate statistics for the cost of capital variable : investment environment....................156 3-24 Ordered probit regression results for policy influences on the investment environment of selected CARICOM countries fo r the variable cost of capital....................................157 3-25 Univariate statistics for the exchange rate variable: investment environment....................158 3-26 Ordered probit regression results for policy influences on the investment environment of selected CARICOM countries fo r the variable exchange rate....................................159 3-27 Univariate statistics for the access to markets variable: investment environment..............160 3-28 Ordered probit regression results for policy influences on the investment environment of selected CARICOM countries fo r the variable access to markets...............................161 3-29 Univariate statistic s for the availability of technology variable: investment environment.162 3-30 Ordered probit regression results for policy influences on the investment environment of selected CARICOM countries for the variable availability of technology.................163 4-1 Univariate statistics for variables pertaining to inter-country trade between pairs of selected CARICOM countries.........................................................................................169 4-2 Panel regression results for inter-country trade between pairs of selected CARICOM countries, 1981-2005: model 2-4.....................................................................................170 4-3 Panel regression results for inter-country trade between pairs of selected CARICOM countries, 1981-2005: m odels 2-5 and 2-6......................................................................171 5-1 Univariate statistics for the variables in the analysis of investment and productivity..........174

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11 5-2 OLS regression results for investment model of selected CARICOM countries, 19812005........................................................................................................................... .......174 5-3 OLS regression results for output growth model of selected CARICOM countries, 19812005: model 2-10.............................................................................................................175 5-4 OLS regression results for output growth model of selected CARICOM countries, 19812005; model 2-10 ( with population as proxy for labor)..................................................176

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12 LIST OF FIGURES Figure page 2-1 Trade-creating Union of A a nd B. Constant costs, Vinerian analysis. Source: (Bhagwati and Panagariya, 1999, Fig 2.1(a) p 40)..............................................................................58 2-2 Trade Diverting Union of A and B. Constant costs, Vinerian anal ysis. Source: (Bhagwati and Panagariya, 1999, Fig 2.1(b) p 40)..............................................................................58 2-3 Union of Country A and Country B with Partner Countrys Supply Curve Upward Sloping. Effect of union (A+B ) with rising costs from partner country. Source: (Bhagwati and Panagariya, 1999, Fig 2.2, p 43)................................................................59 2-4 Union of Country A and Country C with third countrys supply curve sloping upward. Effect of union (A+C) with rising costs from third count ry. Source: (Bhagwati and Panagariya, 1999, Fig 2.3, p 44)........................................................................................60 3-1 Profile of size of firms: Survey A......................................................................................... .108 3-2 Profile of size of firms: Survey B......................................................................................... .108 3-3 Ministry representation pr ofile of Policy A respondents......................................................109 3-4 Ministry representation pr ofile of Policy B respondents.......................................................109 3-5 Experience profile of Policy A respondents..........................................................................110 3-6 Experience profile of Policy B respondents.........................................................................110 3-7 Areas of specialization prof ile of Survey A respondents......................................................111 3-8 Degree profile Survey A: Top areas of specialization...........................................................111 3-9 Area of specialization of Survey B respondents....................................................................112 3-10 Degree profile Survey B: Top areas of specialization.........................................................112 3-11 Summary of impact evaluation of criti cal business factors on business operations............113 3-12 Perception of the influence of national government policies on critical business factors...113 3-13 Perception of the influence of CARI COM policies on critical business factors.................114 3-14 Perception of the influence of CARI COM policies on firms business operations.............114 3-15 Firms comparison of perceived policy impacts by policy source. ....................................115

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13 3-16 Firms perception of the contribution of CARICOM integration arrangements to countries economic gains................................................................................................116 3-17 Enterprise perception of importance of cr itical business factors for future investment......116 3-18 Perception of government policy infl uence on future investment decisions.......................117 3-19 Perception of CARICOM policies influenc e on business factors related to investment...117 3-20 Perception of the influence of CARICO M policy areas on investment decisions..............118 3-21 Firms perception of the influence of CARICOM integration arrangements on incountry investment...........................................................................................................118 3-22 Perception of national policy imp act on critical business factors.......................................119 3-23 Policy makers perception of CARICO M policies on critical business factors..................119 3-24 Perception of CARICOM policies impact through national policy on critical business factors........................................................................................................................ .......120 3-25 Perceived impact of specific CARI COM policy areas on business climate........................120 3-26 Policy makers comparison of percei ved policy impacts by policy source. .......................121 3-27 Policy makers perception of the contribut ion of CARICOM arrangements to countries economic gain..................................................................................................................122 3-28 Policy makers outlook on investment climate....................................................................123 3-29 Policy makers perception of national policy impact on investment climate......................123 3-30 Policy makers perception of CARICOM policy impact on investment climate................124 3-31 Policy makers perception of impact of CA RICOM policy areas on investment climate..124 3-32 Policy makers perception of influence of CARICOM integration arrangements on incountry investment...........................................................................................................125 3-33 Dominicas view of the contribution of CARICOM arrangements to economic gain........126 3-34 Guyanas view of the contribution of CARICOM arrangements to economic gain...........126 3-35 Jamaicas view of the contribution of CARICOM arrangements to economic gain...........127 3-36 St. Lucias view of the contribution of CARICOM arrangements to economic gain.........127 3-37 Trinidad & Tobagos vi ew of the contribution of CARICOM arrangements to economic gain..................................................................................................................128

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14 3-38 Micro firms view of the contribution of CARICOM arrangements to economic gains....128 3-39 Small firms view of the contribution of CARICOM arrangements to economic gains.....129 3-40 Medium firms view of the contribu tion of CARICOM arrangements to economic gains.......................................................................................................................... .......129 3-41 Large firms view of the contribution of CARICOM arrangements to economic gains.....130 3-42 Agricultural firms view of the contribu tion of CARICOM arrangements to economic gains.......................................................................................................................... .......130 3-43 Manufacturing firms view of the c ontribution of CARICOM arrangements to economic gains.................................................................................................................131 3-44 Service (Tourism & Hospitality) firms view of the contribution of CARICOM arrangements to economic gains......................................................................................131 3-45 Service (Professional & Other) firms view of the contribution of CARICOM arrangements to economic gains......................................................................................132 3-46 Trade and Commerce firms view of the contribution of CARICO M arrangements to economic gains.................................................................................................................132 3-47 Agriculture and manufacturing firms view of the contribution of arrangements to economic gains.................................................................................................................133 3-48 Service (All) firms view of the contri bution of CARICOM arrangements to economic gains.......................................................................................................................... .......133 3-49 Manufacturing, trade and commerce firms view of the contribution of CARICOM arrangements to economic gains......................................................................................134 3-50 Probability distribution func tion for cost of capital probab ility response projection for the least influential variable impact in the current business environment.......................134 3-51 Probability distribution func tion for cost of capital probab ility response projection for the most influential variable impact in the current business environment.......................135 3-52 Probability distribution f unction for availability of t echnology probability response projection for the least influential policy perception in the current business environment.................................................................................................................... .135 3-53 Probability distribution f unction for availability of t echnology probability response projection for the most influential variable impact in the current business environment.................................................................................................................... .136 3-54 Probability distribution func tion for cost of capital probab ility response projection for the least influential variable impact in the investment environment...............................136

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15 3-55 Probability distribution func tion for cost of capital probab ility response projection for the most influential variable impact in the investment environment...............................137 3-56 Probability distribution function for acce ss to markets probability response projection for the least influential variable imp act in the investment environment..........................137 3-57 Probability distribution function for acce ss to markets probability response projection for the most influential variable imp act in the investment environment.........................138

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16 Abstract of Dissertation Pres ented to the Graduate School of the University of Florida in Partial Fulfillment of the Requirements for the Degree of Doctor of Philosophy IMPACT OF THE CARICOM ECONOMIC INTEGRATI ON ARRANGEMENTS ON THE ECONOMIC GAINS OF SELECTED CARICOM COUNTRIES By Ronald M. Gordon December 2007 Chair: John J. VanSickle Major: Food and Resource Economics The Caribbean Community (CARICOM) was formed in 1973, driven by inter-related political and economic considerations which were fuelled by the relative ly small sizes of the respective members. Regionalism resulting from CARICOM was anticipated to provide greater scope for the economic growth of the countries. This study evaluates the extent to which the CARICOM policies contributed to the countries economic gain by interviewing and surveying entrepreneurs and policy makers and by conduc ting trade and investment analyses. The study focuses on the countries of Dominica, Guyana, Ja maica, St. Lucia and Trinidad and Tobago as representative of CARICOM. The interviews of entreprene urs and policy makers indicate that both groups considered CARICOM a good concept. However, in contrast to policy makers, entrepreneurs did not perceive CARICOM strengthening their business environment. Th e survey responses reveal considerable heterogeneity within the business en vironment of the five countries, particularly when the responses are examined by country, firm size or sub-sector of operation. Ordered probit econometric analysis of the survey responses was completed for four business variables: cost of capital, exchange rate, access to markets and availability of technology The results indicate that

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17 national policy was perceived to have a statisti cally significant influence on each variable, for both the current business envir onment and future investment climate. CARICOM policy was seen to have a statistically significant influence only on the availability of technology in the current business environment. Most firms are only weakly optimistic about the contribution of CARICOM to their countries economic gains. A gravity analysis of the trade flows between pairs of the countries over the period 19812005 indicates that countries experienced both trad e creation, evidence of potential welfare gains and trade diversion, suggesting pote ntial welfare losses. The analys is was inconclusive about net welfare gains. An ordinary l east squares regression analysis of investment and productivity changes over the same period showed strong eviden ce of investment and capital stock formation. The research results suggest the need for a more inclusive CARICOM policy formulation process with respect to diversity in firms and country circumstances.

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18 CHAPTER 1 INTRODUCTION Background to the Caribbean Community The Caribbean Community (CARICOM) is the pr oduct of an evolutionary process driven by political and economic considerat ions. The initial membership co mprised entities with similar cultural and historic background pr omoting thoughts of political and economic cooperation and a common destiny. Political Impetus The West Indies Federation comprised the ten island territories of Antigua and Barbuda, Barbados, Dominica, Grenada, Jamaica, Montse rrat, the then St Kitts-Nevis-Anguilla, Saint Lucia, St Vincent and the Grenadines and Trin idad and Tobago. It was established in 1958 by an Act of the British Parliament with the ultima te goal of political union among its members. The leadership of the Federation promoted economic ve ntures in which the territories were jointly involved. Cooperation was also evident in social areas such as tertiary education. However the group faced difficulties pertaining to matters such as taxation, the issue of central planning and the ceding of power from the Territorial Govern ments to the Federal Government. Jamaica, the member with the largest popul ation, withdrew following a 19 61 national referendum on its participation in the Federation. Trinidad and T obago soon followed, leading to the formal demise of the Federation in 1962(CA RICOM Secretariat, 2006f). A subsequent attempt at fostering economi c cooperation among the Caribbean territories was initiated with the Caribbean Free Trade Association (CARIFTA) founded in December 1965 by the governments of Antigua and Barbuda, Ba rbados, Guyana and Trinidad and Tobago. Beginning mid-1968 the membership of CARIFTA was incrementally expanded with the group

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19 eventually comprising 12 members when Belize joined in 19711. Among the economic goals of CARIFTA were More diversified, increased and liberalized intra-regional trade The equitable distributio n of gains from trade Growth and rationalization of production within the agricultural sector with attention to specific commodities The promotion of industrial development and revenue stability among the smaller territories dubbed the Least Developed Countries ( LDCs)( CARICOM Secretariat, 2006e) CARIFTA evolved into the Caribbean Community and Common Market with the signing of the Treaty of Chaguaramas on July 4, 1973 which went into effect on August 1, 1973 (CARICOM Secretariat, 2006d). The Treaty embodied a unique feature refl ecting two separate legal entities, the Caribbean Community and the Caribbean Common Market, thus enabling a state to opt for membership in one and not the other2. The Caribbean Common Market, with a focus on trade cooperation, envisaged the creatio n of a customs union among its members with the ultimate purpose of fostering their economic growth and development. This was envisioned to be effected through a harmonization of forei gn policy, intra-regional trade regimes and various cooperation programs in sectors such as agricult ure, industry, health, e ducation and tourism. Toward this end the Member States agreed upon and implemented trading instruments such as common border tariffs and area origin criteria to stimulate manufacturing particularly from indigenous raw material. Collectiv e agreements have also been made in matters relating to foreign policy and international relations intend ed to promote a Community approach to trade 1 The CARIFTA membership with year of joining in pa renthesis was: Antigua and Barbuda (1965), Barbados (1965), Belize (1971), Dominica (1968), Grenada ( 1968), Guyana ( 1965), Jamaica (1968), Montserrat (1968), Saint Lucia ( 1968), St Kitts-Nevis-Anguilla (1968), St Vincent and the Grenadines ( 1968) and Trinidad and Tobago (1965). 2 The Bahamas made use of this juridi cal hybrid when in 1983 it became a me mber of the Community but refrained from joining the Common Market.

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20 agreements with some developed countries or count ry blocs such as Canada, the United States of America, the European Union (EU), The North American Free Trade Agreement (NAFTA), the Association of Caribbean States (ACS), Colombia, Venezuela, and Cuba (CARICOM Secretariat, 2006a; CARICOM Secretaria t, 2006b; CARICOM Secretariat, 2006c) Initial Economic Considerations A review of the economic considerations pertaining to economic integration among the countries of the Caribbean was undertaken by a re search team at the Un iversity of the West Indies in the mid-1960s, shortly after the laun ching of CARIFTA (Brewster and Thomas, 1967). The researchers proposed a concept of integration that was claimed to be positive with potential benefits to the region as a whol e as well as that of the compone nt parts (Brewster and Thomas, 1967, p2).The concept embodied a wide range of associations across the countries, including economic, social and cultural. They also cauti oned about the absence of empirical analyses pertaining to the assessmen t of the impact of economic integr ation in the context of developing countries as well as the intui tive generalizations and dubious c lichs made pertaining to the potential gains from countries participation in the Federation and CARIFTA (Brewster and Thomas, 1967, p7). Based upon an evaluation of the extant production, consumption and trade profiles, they devised a strategy for integration that was not limited to cooperation in trade but also involved production integration in the indus trial and agricultural se ctors. The concept of regional industrial programming was influenced, inter alia by the then dominant view of import substitution industrialization (IS I), the relatively small market size available on an individual country basis and the attendant scale economy production challenges for both agricultural and industrial growth. This stra tegy was supported by recommendations for institutional arrangements deemed critical for researching, facilitating and supporting potential integration policies and activities (Bre wster and Thomas, 1967).

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21 In 1989 a conference of the Association of Ca ribbean Economists discussed the issue of regional integration. At those de liberations Girvan (1990) posited that the integration process should be more inclusive and interactive. He succinctly outlined the case for gradually addressing the various dimensions of the integrat ion process such as economic, social, cultural and political (Girvan, 1990). At the same conf erence Samuels (1990) delivered an extensive treatise in support of gr eater regional economic cooperation as a strategy for development in the Caribbean. His discussion reinforced the positions outlined earlier by Brewster and Thomas with regard to the agricultural and industrial sector s and extended the consid erations of regional cooperation to finance and the non-economic issu es such as health, education, culture, and information. The scope of Samuels(1990) treatise also included consid eration of cooperation with other countries and isla nds in the Caribbean basin. The West Indian Commission Review of the CARICOM Integration Arrangements The July1989 meeting of the H eads of Government of the Caribbean countries in Grand Anse, Grenada issued a declaration addressing po licy goals pertaining to the advancement of the integration movement. That meeting also established an Independent West Indies Commission for Advancing the Goals of the Treaty of Chaguaramas and mandated that the Commission submit its report in July 1992 (The West Indian Commission, 1994). The 1989 decision by the Heads of Government on the transformation of the integration process, envisaged the achievement of the c oncept of a CARICOM Single Market and Economy (CSME). This necessitated the adoption of the R evised Treaty of Chaguaramus Establishing the Caribbean Community Including the CARICOM Single Market and Economy (CARICOM Secretariat, 2006h). In addition to the features of the earlier common market, the CSME emphasized trade in services and the unrestr icted movement of th e factors of production, including labor. Within CARICO M many features of a classic customs union have not been

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22 attained to date. For example, the complete removal of intra-zonal tariffs on trade and the establishment of a common external tariff in respect of trade with third countries have yet to be fully implemented. Despite this, proponents of the CSME envisage a co mmon market with the unrestricted movement of factors of producti on and ultimately the possible creation of an economic union with the coordination of macr o-economic and monetary policies (CARICOM Secretariat, 2006g). Members of the West Indies Commis sion (WIC) consulted extensively with representatives of all conceiva ble interest groups across the th irteen members of CARICOM as well as with the Caribbean Di aspora and neighboring Caribbean countries and islands. The comprehensive WIC report identifie d some notable achievements such as the maintenance of a domestic market that provides valuable le arning experience for entr epreneurs wishing to eventually export globally as well as successful cooperation in the fields of health, education and external relations. In contrast, except for the in troduction of the rules of origin, progress was intermittent on trade related issues like the impl ementation of the common external tariff (CET) regime and a related payment arrangements facility. In summary, the WIC described the progress as depressingly sl ow (The West Indian Comm ission, 1994, p38). The WIC report offered a broad suite of recommendations for th e consideration of the Heads of Governments. These included Pursue and support an export-led growth st rategy and reduce di rect public sector involvement in the producti on of goods and services Speed the implementation of the CET by de linquent countries, t ogether with the curtailment of options for exemptions there from Reaffirm and specify implementation measures for a single currency as an essential component of a Single Market and Economy Establish investment, savings and re lated financial sector targets

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23 Agriculture, manufacturing a nd tourism should be developed on a symbiotic basis with a common set of agricultural health regulations across the region When he presented the report to the Head s of Government the Chairman of the WIC noted that the Commissions basic finding was that there was a structural inadequacy in the CARICOM arrangements that allowed and accommodated inordinate delays in the implementation critical CARICOM policy and urged that remedial action be taken (The West Indian Commission, 1994, pxxix). A Recent World Bank Perspective on Caribbean Development The 2005 report of a World Bank research t eam cited some of the unique development challenges of the Caribbean countries incl uding their small size, open economies, and vulnerability to natural disa sters with attendant economic volatility (World Bank, 2005). The analysis of the regions development strategy and growth performance focused both on national and regional issues. For the la tter, it acknowledged the emphasis on a regional integration policy and the thrust towards the establishment of th e CSME. The lag in the CSME implementation was noted and the observation made th at integration within CARICO M suffers from possibly large trade diversion, owing to still relatively high external tariffs on many products (World Bank, 2005, pxxvii). Policy changes were perceived as a necessary precursor to the achievement of improved and sustained economic growth. Among th e areas identified in ne ed of reinvigorated policy were An investment climate promoting privatesector driven growth and de-emphasizing subsidies Human capital enhancement to support knowledge-based growth The promotion of a competitive trade regime and The deepening of regional integration through the acceleration of the trade related aspects of the CSME

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24 The World Bank report advocated dialogue among all the relevant stakeholders with the goal of developing a path to achieve improved growth and competitiveness and dissipate the business as usual syndrome (World Ba nk, 2005, pxxviii). Thomas (2005) delivered an insightful comment on the World Bank (2005) repo rt at a Caribbean Development Bank (CDB) sponsored Caribbean Development Forum. He observed that the report displayed some methodological strength in its quantitative approach to iden tifying the sources of growth. However, while citing other weaknesses, Thomas ( 2005) perceived that a cr itical deficiency of the report was the absence of micro level analysis of issues pertaining to the competitiveness of Caribbean firms and enterprises in the global market. Some Current Perspectives of CARICOM Gordon and VanSickle (2007) investigated pers pectives in the Cari bbean Community of entrepreneurs and policy makers in five countries, through interv iews with selected firm and policy representatives from Dominica, Guyana, Jamaica, St. Lucia and Trinidad and Tobago. The five countries were selected as a represen tative sample of CARICOM. This activity was intended to contribute to the enhancement of th e understanding of the im pact of the CARICOM integration agreement on the economic gains of it s members, from the perspective of firms and policy makers. One objective was to evaluate the scope of impact of the CARICOM polices and or national government policies on the production and investment decisions of firms. For policy framers, another objective was to determine th e scope of impact of the CARICOM policies and or national government policies on the economic and institutional environment influencing firms production decisions. Firm representative s were interviewed from agricultural production, agricultural marketing, agro processing, agricultura l services, fisheries, manufacturing, professional services and touris m and hospitality services. Polic y makers from ministries of

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25 agriculture and fisheries, fi nance, trade and industry, planning and tourism were also interviewed. Firm interviewees were questioned on thei r perception of CARICOM, the impact of the CARICOM arrangements on aspects of their business as well as opportunity to input into the design of CARICOM policy. They were also invited to elaborate fo llowing their initial response. Policy interviewees were questioned about thei r perception of CARICOM, the impact of the CARICOM arrangements on their na tional policy development activi ties as well as their business environment and opportunity to input into the design of CARICOM policies. They too were invited to elaborate following the initial response. A to tal of 47 firms and 18 policy makers were interviewed across the five count ries (Gordon and VanSickle, 2007). All respondents thought of the grouping of stat es when reference was made to CARICOM. A majority of both groups perc eived that CARICOM was good, citi ng in support a larger market, opportunity for increased competitiveness and improved prospects for economic growth. In contrast, some reservations were voiced c oncerning, protracted decision-making, the noninvolvement of the grass roots and the apparent lack of focu s on the optimizat ion of national level resources. Some firms view ed the CARICOM arrangement as contributing to a decrease in business partly because of increased protec tionism among members. Others perceived an increase in the cost of their doing business or constraints on th eir target market because of greater protectionism or the presence of nontariff barriers (NTBs). A few firms indicated having an opportunity to input into the design of CARICOM policy but many were of the view that the CARICOM arrangements di d strengthen their business envi ronment. A small number of policy makers said that national policy de velopment was made easier by the CARICOM arrangements and many indicated opportunity to provide input into the design of CARICOM

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26 policies. However, in contrast to the firms, few thought th at the CARICOM arrangements strengthened their bus iness environment. A subset of the firms and policy makers were questioned about the impa ct of the NTBs and the intrinsic structural characteristics of some national economies. The firms indicated that NTBs ultimately constrain a firms growth and can negatively impact a countrys economic gains. Policy makers advocated that gr eater cognizance be taken of th e structural weaknesses of the economies of some states as a prerequisite to ar riving at regional policy. A differential approach to policy design, focusing on a sub-group of count ries, was tabled as an option to level the playing field within the Community. In summary, there was no strongly dominant view among firms or policy makers of the beneficial effects of the CARICOM arrangements on the member states, as represented by the target countries. The interviews indicated that the positive perception of firms concerning the CARICOM arrangements contribution to a stronger business environm ent contrasted with that of policy makers, despite both groups viewing CARICOM as being good (Gordon and VanSickle, 2007). In essence, there is uncer tainty among segments of the population about the extent to which the CARICOM integration arrangements have proved beneficial to the countries involved. Among other contributors to the continuing di scussion on the economic integration process in the CARICOM are McIntyre (1995), Brya n (1995), Lewis (1996), Ross-Brewster (1996), Blake (2007) and Girvan (2007). Ross-Brewster pr oposed a political union of the states while Lewis argued for strategic alliance s with neighboring countries and entities. The contributions of McIntyre, Blake and Girvan are cast within the ambit of the CSME with varying emphases. The Girvan (2007) report is the most comprehensiv e, with a vision encompassing economic, social

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27 and foreign policy dimensions at both the national and regional levels. This vision was recently adopted by the Heads of Government of CARICOM (CARICOM Secretariat, 2007). A common thread that permeates all of these re ports is that the matter of economic growth and development in the countries of the Cari bbean Community is extremely multi-faceted. The implication is that there is need for continui ng attention to issues pe rtaining to the economic wellbeing of the Caribbean Community. Problem Statement and Research Questions Problem Statement At its inception in 1973 the Caribbean Community was conceptualized and developed with a view to increasing trade and general econom ic cooperation among its members, with the underlying rationale that the groupin g of states would be able to better enhance their economic gains and growth as a collectiv e than as individual nation stat es. This rationale was based on economic theory pertaining to economic integr ation arrangements which hypothesize that economic and welfare gains were realizable fr om the process of amalgamation of separate economies into larger free trading regions (Balassa, 1961; El-Agraa, 1997). However the expectation of economic benefits from the embr acing of preferential trading arrangements (PTAs) has been questioned by Bhag wati and Panagariya (1999). The implementation of the various CARICOM policy arrangements has been non-uniform and spotty. This trend begs the investigation of the appropriateness of the policy instruments since CARICOM members should no t hesitate to implement policy measures perceived to be beneficial to their economic well being. To date there has not been any attempt to validate, or otherwise, the economic theory applicable to th e circumstances of the Caribbean Community at the member state level. As a consequence, CARICOM policy measures are continually being pursued without any empirical evaluation as to their efficacy or impact in relation to the

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28 underlying goals of the Caribbean Community. This dissertation aims to evaluate whether the CARICOM policy measures have contributed to the economic gains of the members of the Caribbean Community, from an empirical analysis of the historic data on intra-regional trade performance of the economies as well as from an evaluation of the perspec tive of the agents that are germane to the generation of economic output. Research Questions The empirical analyses of the trade and ec onomic performance data together with the survey of economic agents and their policy makers are being undertaken to address two testable hypotheses, namely Economic agents within CARICOM recognize benefits from the preferential trading arrangements of CARICOM and CARICOM preferential trading arrangements have contributed to the economic gains of its members The hypotheses will be tested through resear ch focused on a subgroup of five countries deemed to be representative of CARICOM, namely: Dominica, Guyana, Jamaica, Saint Lucia and Trinidad and Tobago. Objectives of the Study The overall objective of this research is to empirically estimate the contribution of the Caribbean Community policy measures (CCPMs) to the economies of its members and the operations of their constituent economic agents. An enhanced understanding of the impact of the CCPMs is expected to provide a more robust fo undation for establishing a policy environment that promotes economic gains a nd encourages economic growth. Specific objectives are

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29 Specific objective 1 : Empirically estimate the static econom ic and potential welfare gains to members ex post the establishment of the custom s union of CARICOM, against the theoretical construct of econom ic integration arrangements.3 Specific objective 2 : Empirically determine the dynamic im pact of the economic integration arrangements on the level of investment and the growth in output of the target countries Specific objective 3 : Empirically evaluate th e perception of firms and policy makers of the target countries within CARICOM of the source of the policy measures that influence their business environment Specific objective 4 : On the basis of the above evaluations assess the impact and role of the CCPMs, if any, in influencing the economic gain s achieved by the target countries over the period and Specific objective 5 : Discuss alternatives and evaluate policies and strategi es that can be pursued by the Caribbean Community to enable increased contribution to the economic gains and welfare of its members 3 The selection of the period was influenced by the availability of the data and the implementation of the major trade policies. In the latter instance despite earlier agreements the phased implementation of the common external tariff (CET) commenced in 1993.

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30 CHAPTER 2 REVIEW OF LITERATURE AND METHODOLOGY Regionalism in Context The growth of regionalism in the world economy commenced in the late 1940s. Two phases are evident, the first in the 1960s and the second in the 1980s (Bhagwati, 1999). Balassa (1961, p1) defines regionalism as a process and as a state of affairs. El-Agraa, (1997, p1) has a somewhat more expansive concept of a state of affairs or a process which involves the amalgamation of separate economies into larger fr ee trading regions. In an amplification of his concept, Balassa (1961) indicates that the proce ss entails measures to eliminate discrimination between economic units of differe nt nation states while pursui ng equitable treatment between national economies. Therefore, an economic integration arrange ment involves the removal of trade restrictions between two or more count ries and the implementation of elements of cooperation and coordination between or among them in contrast to di stinct and different policies applied to non-members or third countries. The forms of reciprocal economic integration arrangements generally recognized, in increasing hierarchal order, are( Balassa, 1961; El-Agraa, 1997): Free-trade area Customs union Common market Economic union Complete economic integration Free trade areas and customs unions are basic forms of economic integration arrangements (EIAs) in which tariffs and quantitative restric tions are removed for trade between participating members but applied to trade with non-members or third countries. In customs unions, there is the additional policy of the equalization of tariffs for trade between members and third countries, through the adoption of a common external ta riff or CET (Balassa, 1961; El-Agraa, 1997;

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31 General Agreement on Tariffs and Trade (Organ ization), 1953). In a common market, trade restrictions are abolished a nd factor movements are unregul ated. An economic union has the characteristics of a common market as well as some degree of harmonization of economic policies in an attempt to redress any discrimina tion resulting from dispar ities in those policies (Balassa, 1961). El-Agraa (1997) characterizes economic unions as EIAs in which there is complete unification of monetary and fiscal po licies through the establ ishment of a central authority.4 Initially, free-trade areas (FTAs) and customs unions (CUs) were projected to contribute to trade creation or trade diversion within participating count ries, based on the classical static analysis of Viner (1950). The formation of thes e EIAs was encouraged as a sub-optimal step towards the maximization of world welfare by virt ue of discrimination against non-members (ElAgraa, 1997; Lipsey, 1957; Lipsey and Lancas ter, 1956; Meade, 1955). However, Bhagwati and Panagariya (1999) expressed strong reservations about the ultimate welfare benefits obtainable by most countries from such arrangements, except perhaps those among developing countries that individually have minimal im pact on world trade. They argued that eventual benefits should be determined on a case-by-case basis. The rules of the General Agreement on Tari ffs and Trade (GATT) and its successor the World Trade Organization (WTO) permit the estab lishment of preferential trading arrangements or economic integration arrangements. Among the better known EIAs are the European Union (EU), European Free Trade Association (EFT A), North American Free Trade Agreement (NAFTA), Southern Common Market (MERCOSUR) Association of South East Nations Free 4 The North American Free Trade Ag reement (NAFTA) and the European Free Trade Association (EFTA) are examples at the less complex end of this spectrum. The European Communities (EC) was established as a customs union in January 1985. It subsequently evolved into a common market and more recently into an economic union. Further evolution of the European Union into a political un ion was stymied, with the failure of ratification of a proposed constitution by the citizens of France and Netherlands, May and June 2005 respectively.

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32 Trade Area (AFTA), and Common Market of East ern and Southern Africa (COMESA) (World Trade Organization, 2007). Blomstrom et al. (19 97) suggest that a combination of economic and political considerations motivated the fo rmation of these arrangements but posit that economics was generally the driving force. Writing at the time when the European Uni on comprised 15 members, El-Agraa (1997) deemed this EIA to be successful as measured by the record of enhanced intra-EU trade. Four years after the European Union implemented th e economic and monetary union (EMU) phase of its economic integration arrangements the study of Barr et al. (2003) conc luded that the trade creation effects experienced by members were si gnificant. They also found that had countries, like the United Kingdom, joined the EMU, they would have benefited from marginal gains in GDP. The study of Micco et al. (2003) also es tablished that the EMU increased trade amongst its members as well as with the rest of the world. Initially established by six founding members, the EU has since grown to 27 in 2007 with other states actively consider ing accession. This EIA has therefore achieved success in both dynamic elem ents referred to above. The majority of the other EIAs cannot point to similar achievemen ts. Mwebeiha (2004, p244) describes the EIAs in Eastern and Southern Africa (ESA) as being overly ambitious, setting economic and political integration targets and timetables often prem ised upon political rhetoric. He cites a characteristic of overlapping membership that has hampered rather than promoted trade liberalization since membership obligations often conflict. Yeat s (1998) highlights some more fundamental issues pertaining to the functioning of EIAs in the less industrialized countries of sub-Saharan Africa (SSA) based upon an empirical analysis of the available trade data. He concluded that the level of SSA intra-trade wa s relatively low, dominated by a few commodities and countries and not associated with the prevai ling EIAs. Panagariya (19 93) projected that the

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33 formation of the AFTA was likely to be count erproductive on account of, inter alia: small internal markets, low levels of intra-regional trad e, higher tariffs and a reluctance to liberalize in the larger countries and perceived difficulties with the distribution of the gains. This view was substantiated empirically by Lewi s et al. (1995) who demonstrated that AFTA provided marginal benefits to its members. El-A graa (1997) reported that the Central Ameri can Common Market (CACM) experienced a nine-fold increase in intra-regi onal exports during its first decade. But problems pertaining to market si ze, fiscal policy, war between two partners and subsequent political turmoil left the CACM moribund despite attempts at its revival (The Columbia Electronic Encyclopedia, 2007). Hirsch (2005) reinforced the arguments of Blomstrom et al. (1997) that Mexico was mainly motivated to enter NAFTA in order to attract foreign direct investment (FDI) and contended that empirical studies have confirmed the achievement of that goal. In contrast, the Canada-United States Free Trade Agreement (CUSFT A) did not have a similar impact since the trade between Canada and the United States was already relatively liberalized (Blomstrom et al., 1997). Fernndez (1997) argued that NAFTA also provided non-trad itional (non-economic) gains for both Mexico and the United States such as domestic policy assurance to investors for the former and long-term economic stability togeth er with reduced illegal migration pressures for the latter. Blomstrom et al (1997) also examined the e ffects on South-South regional integration as found in MERCOSUR. They concl uded that there would be a positive impact on FDI but of varying magnitude among the four coun tries because of their different competitive strengths among other circumstances. The anal ysis of the trade fl ows in MERCOSUR by Estevadeordal et al. (200 0) demonstrated that, ex post trade liberalization, there was a dramatic expansion of intra-zonal trade directly at tributable to the formation of the EIA.

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34 The study of Gonzales (2002) concluded that there have been weak economic gains from the CARICOM EIA as evidenced by moderate trad e and investment integr ation, low growth of extra-regional exports and weak attraction of FDI. He identif ied persisting national policies concerning trade tariffs as impeding the achieve ment of a regional common external tariff. However, Andriamananjara et al.. (1998) adva nced, and demonstrated using CARICOM as a model, that in lieu of economic benefits from EIAs, micro-states can use the grouping as a political instrument in trade and investment nego tiations with larger count ries and other trading blocs. This conclusion supported the concept of Fernndez (1997) that there are non-traditional gains from regional trading a rrangements. Egoum-Bossogo and Mendis (2002) analyzed trade in CARICOM over the period 1980-1999, incorporati ng point and period average estimates of trade into a gravity model framework. They c oncluded that intra-CARICOM trade increased over the period even though the groupings trade w ith the rest of the wo rld had also increased because of trade liberalization measures. Theoretical Considerations for Free Trade Areas and Customs Unions Trade creation refers to the replacement of domestic production by less costly imports from a partner country while trade divers ion is the replacement of cheaper third country or non-member imports with more expensive goods from a memb er country (El-Agraa, 1997). Trade creation reflects a shift from an inefficient to an effi cient source of supply while trade diversion is movement from an efficient supplier to an in efficient one (Bhagwa ti and Panagariya, 1999). Globally, trade creation represents a movement towards the freetrade position and is welfare enhancing while trade diversion is in the oppos ite direction and welfar e depleting. Under the assumption of constant costs, the welfare impact of a trade-creating union of two countries in a three-country world can be modeled following Viner as depicted in Figure 2-1 while that of a

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35 trade-diverting union of two countries can be depicted as in Figure 2-2 (Bhagwati and Panagariya, 1999). Figure 2-1 depicts a model of trade between c ountries A and B with the rest of the world represented by C. As import demand for a specific product is represented by MAMA and PBEB and PCEC the export supplies of the same product from B and C respectively. The supply prices of B and C are assumed to be constant a la Vine r. Prior to a union between A and B, As imports are OM0, solely from B for which A receives areas 1 and 2 in tariff revenues. Following an FTA between A and B the tariff revenue is remove d and As imports of the good increases to OMFTA. The new price to consumers falls to PB and their welfare increases. The union results in trade creation since partner B is the lo wer cost producer relative to C. In summary A suffers a tariff revenue loss of areas 1 and 2 but As consumers ha ve a gain in surplus eq ual to the sum of areas 1, 2, 3 and 4. The union of A and B results in a net welfare gain of areas 3 and 4. In figure 2-2 the import demand and export supply parameters are similarly represented as in figure 2-1. However, now B produces at a cost higher than that of C. A nondiscriminatory tariff prior to a union results in all of As imports, OM0, now coming from C. The union between A and B forces A to source its imports from th e higher cost producer B and imports expand to OMFTA. But the supply source is now switched to the higher cost producer B. Some trade creation results consequent upon increased import s and the displacement of some inefficient domestic production5 and higher consumption in A. But trade in the quantity of OM0 is diverted from C to B. Country A experiences a tariff re venue loss of areas 1 and 2 while the gain in surplus is represented by areas 1 and 3. The net gain or loss to the union would be the difference 5 Assumed to be of minimal impact. Note that displacemen t of domestic production will cause an outward shift in As demand curve, not specifically reflected in Figure 2-2.

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36 between areas 3 and 2. The loss represented by area 2 would be larger than the gain represented by area 3 unless the cost differences between B and C are small. Bhagwati and Panagariya (1999) extended their th eoretical analysis of preferential trading arrangements to encompass unions between two countries with rising costs from the partner country as shown in Figure 2-3 as well as those w ith rising costs from the outside country as in Figure 2-4. In both of these figures MAMA represents As import demand for a product for which EBEB and PCPC are Bs and Cs upward sloping and horiz ontal supply curves respectively. Figure 2-3 analyzes and compares the s ituation of a nondiscriminatory tariff with that of free trade and a country specific FTA while Figure 2-4 compares an initial nondiscriminatory tariff with an FTA. In figure 2-3, the case of an initial specific nondi scriminatory tariff, at tariff level t, depicts supplies from B and C being perceived by consumers in A as t B t BE Eand t C t CE Prespectively. Imports into A total OQ3 comprised of OQ1 from B and Q1Q3 from C. A receives tariff revenue equivalent to the rectangle GHNS and the gain s from trade for A amount to GHNS plus the triangle KSG. For B, the gains from trade are eq uivalent to the area above EBEB and below the net price received, PC, and this is represented by the triangle HUD. Count ry C neither gains nor loses as is summarized in column 1 of table 21. Now if there were free trade with the tariff being eliminated on a nondiscriminatory basis the price in A falls to PC resulting in unchanged imports from B and those from C increasing by NR. A loses tariff revenue, but the loss of tariff revenue is exactly offset by a lower consumer pri ce. In addition, the gains from trade increase by triangle RNS due to the higher level of consumption at a lower price. There is no change in B or C and the net effect is summarized in column 2 of Table 2-1. In the instance when A forms an FTA with B by eliminating the tariff on imports from B while retaining it on those from C, imports from B rise by Q1Q2 to OQ2 and those from C fall to Q2Q3. B now gains from the FTA

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37 owing to an improvement in its terms of trade. Bs exporters now receive a price increase from CP to t CP and Bs gains increase by GFUH. Cs perfect ly elastic supply allows the continuation of imports after the formation of the FTA and the price in A remains the same but A suffers the loss of the tariff revenue on imports from B. The FTA therefore diverts imports Q1Q2 from the more efficient producer C to the less efficient B resulting in A s loss exceeding Bs gain by the area FLU as summarized in column 3 of Table 2-1. In contrast to the assumptions of less than perfect elasticity of supply in a union partner a nd perfectly elastic supply in a non-partner as in Figure 2-3, Figure 2-4 considers the circumstances where As union partner C is a less efficient supplier compared to the rest of the wo rld represented by B. Following the initial nondiscriminatory tariff, t, the FTA lowers the price in A to PC. As a result As net gain (equal to RNS + HWYZ) exceeds what would have obtained under free trade by the equivalent of the tariff revenue on all imports (HWYZ). However, B suffers a net loss as summarized in column 2 of Table 2-2. Bhagwati and Panagariya (1999) use the an alysis described above, together with extensions considering a non-unifo rm external tariff in the uni on and selective consumption of the product, to conclude that th e welfare effect of preferenti al trading arrangements will be ambiguous in general and potential ly harmful to a member of the union even in the absence of trade diversion. Emphasizing that their conclu sion applied to varying circumstances of PTAs, they wrote: Our analysis of the static effects of PTAs is far less sangui ne than is cust omarily assumed by several policy economists, bureaucrats, and po liticians today. It also challenges and undermines the validity of the claims made in behalf of regional PTAs, whether the regions are defined in terms of countries with relatively high intraregi onal trade or in terms of proximity with or without common borders. Therefore, if we were to assume that PTAs result from a variety of non-economic factors, we need not be complacent even if those PTAs were to be essentially regional in scope,

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38 when regional means geographic proximity or higher volumes of trade, among rather than outside, members)(Bhag wati and Panagariya, 1999, p67). The above theoretical discussion pertains to th e static effects of an economic integration arrangement. The dynamic impact of an EIA must al so be considered and in this regard there are two elements. The first is the time-path issue pe rtaining to the expansion of the membership of PTAs articulated by Bhagwati (1999) and analyz ed from different perspectives by various researchers (Krugman (1999); Levy, (1999)1999, Deardorff and Stern,(1999), Baldwin, (1999) and Krishna, (1999). The second relates to issues such as productivity, investment and economic growth influenced by the increased market size resulting from the economic integration arrangement (Balassa, 1961). Ther e has been marginal expansion of the membership of the CARICOM integration arrangement since its inception in 1973. Th is study will therefore ignore the time-path aspect pertaining to CARICOM and focus on the second set of dynamic effects. One characteristic difference between devel oped and developing countries that can result in the theory of EIAs not being directly applicable to developi ng countries EIAs is the absence of some functioning market structures in the la tter group of countries (Balassa, 1961; El-Agraa, 1997; Mikesell, 1992; Scitovsky, 1958). Scitovsky (1958) identified some characteristics of developing countries such as high degrees of market imperf ection, risk and uncertainty associated with political instability and policie s of some firms reflected in high margins, low output and unwillingness to invest in plants that will be optimal for future demand. He suggests that these act against the realization of econo mies of scale from EIAs within developing countries. Cooper and Massell (1999) analyzed the impact of customs union participation on developing countries in pursuit of industrialization. They concluded that potential gains would be influenced by: the marginal cost of protection in the countries, their preference for industry, whether their economies are complementary and th e relative dominance in industrial production.

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39 Rules governing the formation and operation of the CU together with a flexible and cooperative policy environment were identified as supportive in the achievement of gains from economic integration (Cooper and Massell, 1999). In summary, the theoretical analysis indica tes that the formation of an EIA is not necessarily Pareto-optimal since there is ambiguity with respect to overall benefits despite some individual country gains. In addition, because of characteristics such as market imperfections, scale economy issues, openness to externali ties and sometimes relatively weaker policy environments, developing countries should undertak e considerably more an alysis to guide policy formulation as they embrace economic integration. Research Methodology, Analytics and Data Methodological and Analytical Procedures Static effects DeRosa (1998) observed that it was a challenge to identify a theoretically robust evaluation technique for studying the impacts of regional integrati on arrangements. He stated that some quantitative studies are ex ante or analytical, projecting the co urse of variables based on a minimum theoretical structure using a priori estimates of key parameters. DeRosa (1998) described others as ex post or empirical utilizi ng historic data to explai n past trends in trade flows and variables of interest. The ex post empiri cal approach is being ad opted for this research. Ex post evaluation of economic integration ar rangements usually measure the effects of economic integration as depicted by the data a nd compares these with the presumed trade under projected identical circumstances in the absence of integration. This latter estimation is termed the anti-monde (DeRosa, 1998; Winters, 1987). Winters (1987) posits that the main difference among studies of the impact of economic inte gration rests with th e treatment of the anti-monde. The residual imputation method of Mayes (1978) c onceptually overestimates the effects by

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40 taking the difference between stoc hastic observations of actual integration effects and a non stochastic anti-monde based on the non-integration level va lues of the variables affected by integration. Busse and Shams (2005) empirically evaluate d the trade effects of the East African Community (EAC) utilizing trade and tariff data for the three countries with the tariffs transformed into the Standard International Tr ade Classification (SITC, Revision 3) and the products at the two-digit level. These researchers used a partia l equilibrium model based on the Verdoorn (1960) model which allowed the iden tification of the commodities that were particularly affected by the customs union of th e EAC (Busse and Shams, 2005). They compared the merits of using a partial equilibrium model with that of a genera l equilibrium model and concluded in favor of using a partial equilibrium model because it required less data and fewer assumptions about key variables. They downplay ed the limitation of th e feature of partial equilibrium models, namely the exclusion of aspects of trade liberalization with the nonaccounting for inter-sectoral linkages and income effects of tariff preferences. However the model assumed product differen tiation between supplying countri es and specifically that imported goods were imperfect substitutes (Bus se and Shams, 2005). This assumption may not hold for countries within the CCI A unless the majority of intrazonal trade is in manufactured goods. Other assumptions of partial equilibrium analysis on which the Verdoorn model is based are no exchange rates or income effects due to changing trade flows, iso-elastic import-demand functions and infinite supply elas ticities. This latter assumption might be troubling for the current study since the elasticities of supply of the CARICOM countries are not expected to be infinite. Busse and Shams (2005) observed that the esti mation of the static effects of economic integration, namely trade creation and trade di version, using the diffe rentiated product model

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41 required estimates of import demand and substituti on elasticities, respectively. The absence of reliable estimates of these parameters for CARICOM countries can be overcome by using a different analytical approach. Tinbergen (1962) was one of the pioneers in the evolution of what became known as the gravity model in its application to the analysis of international trade. Li nnemann (1966) refined Tinbergens (1962) approach and provided a theo retical basis for the use of this model in evaluating bilateral trade. Brada and Mendez (1 983) observed that the gravity equation was commonly employed to quantify th e effect of intra-regional tr ade among preferential trading arrangements and Adams et al. (2003, p31) cons idered it the key ex post econometric technique for examining the determinants of bilateral trade flows. In the gravity model the trade between two countries is positively relate d to their size and inversely re lated to the distance separating them. Other explanatory variables are usually added to analyze va rious trade policy issues. The general form of Linnemanns gravity model is: 5 4 2 k kij k 3 1 0ij jt it P jt it ijtD N N e Y Y e X 2-1 or ijt ij jt jt it it ijtk kij P k 5 4 3 2 1 0e D N Y N Y e X 2-2 where ijtX = value of exports from count ry i to country j in period t 0e = constant itY,jtY= income in the exporting and impor ting country respectively at period t itN,jtN= population in the exporting and impor ting country respec tively at period t

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42 ijD = distance between countries i and j ijkP = dummy variable(s) representing infl uences on bilateral trade flows; and ijt = white noise disturbance term. Brada and Mendz (1983) used a similar model to analyze and compare the benefits derived to members of preferential trading arrangements among both de veloped and developing countries. In their study Adams et al. (2003) investigated the tr ade and investment effects of preferential trading arrangement s using a gravity model augmente d with the inclusion of PTA specific dummy variables to capture the trade creation and trade dive rsion effects based upon studies by Bayoumi and Eichengreen ( 1995) and Frankel et al. (1997). Adams et al. (2003) indicated th at the explanatory variables us ed in gravity models can be grouped into four categories, namely: size, geographical, monetary/price and policy/institutional. They emphasize that the omission of an important determinant of tr ade can lead to bias in the coefficient of the PTA specific dummy variable if the latter is correlated with the omitted variable. Consequently, it is important to incl ude in the model as many normal determinants of the bilateral trade as possible. Soloaga and Winters (2001) citing Winters ( 1997) posit that the welfare of a country is influenced more directly by what is consumed rather than what is exported although the latter does impact on consumption. From this perspective this study will estimate the effects on imports between trading pa rtners in CARICOM. In the mode l used in this study the variables were included to represent: Size (income and population) of th e exporting and importing countries Geographical: Distance between capitals

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43 Monetary/price: Common currency and exchange rate6 Policy/institutional: Tariffs The effects of extra-bloc trade: Imports fr om and exports to th e rest of the world In summary, the gravity model to be estimated is: ijt ti ti ijt ijt Cur ij jt jt it it ijtEXP IMP Tar RER e D N Y N Y Xij 10 9 8 7 6 5 4 3 2 10 2-3 where ijtX = value of imports of country i from country j (i.e. exports from j to i) 0 = constant itY jtY = income in the importing and expor ting country respectively in period t itN jtN = population in the importi ng and exporting country resp ectively in period t ijD = distance between countries i and j, m easured by the distance between the capitals ijCur = Dummy variable that takes the value of zer o if the countries have the same currency, 1 otherwise ijtRER = A ratio of the real ex change rate of the impor ting and exporting country ijtTar = A ratio of the average tariff levels of the importing and exporting country itIMP = Variable reflecting the value of extrabloc imports of country i in period t itEXP = Variable representing extra-bloc exports of count ry i in period t ijt = white noise disturbance term 6 Of the 5 target countries two, Domi nica and St Lucia share the same currenc y-the Eastern Caribbean dollar, at a fixed rate of exchange to the US dollar. The other nationa l currencies are at various market determined exchange rates to the US dollar.

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44 The nonlinear equation 2-3 can be linearized by taking the natural logarithms to yield the following linear model: ij it it ijt ijt ij ij jt jt it it ijtEXP IMP Tar RER Cur D N Y N Y X ln ln ln ln ln ln ln ln ln ln10 9 8 7 6 5 4 3 2 1 2-4 The estimated coefficients of the continuous variab les can then be interpre ted as elasticities of bilateral import flows with respect to the factors of influence. Income of either trading partner, measured by GDP (Y), can expect to have a pos itive impact on trade flows while the size of either country, measured by populat ion (N) which indicates a degr ee of self-sufficiency of a country, can be expected to exert a negative infl uence with larger countr ies being assumed more self-sufficient than smaller ones (Breus and Egge r, 1997) The distance se parating countries acts as a trade-resistance factor and is expected to be negative. The im pact of the other variables is ambiguous and cannot be predicted a priori The determination of the effect of the CARICOM arrangements will be based on an evaluation of the signs and significance of the estimated parameters. Equation 2-4 can be reformulated through simp le algebraic operations to reflect the per capita income of the importing and exporting countries giving: ijt it it ijt ijt ij jt jt jt it it it ijtEXP IMP Tar RER Cur D Y N Y Y N Y X ln ln ln ln ln ln ln ln ln ln10 9 8 7 6 5 4 3 4 2 1 1 0 2-5 or equivalently ijt it it ijt ijt ij jt jt jt it it it ijtEXP IMP Tar RER Cur D N N Y N N Y X ln ln ln ln ln ln ln ln ln10 9 8 7 6 5 4 3 3 2 1 1 0 2-6

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45 Bergstrand (1989) demonstrated that, when the gravity model is expressed as in equations 2-5 or 2-6, the exporters per capita GDP (Yj/Nj) is a proxy for its capital-labor ratio and an increase in the GDP per capita rais es its capital endowment relative to labor. He also argued that the importers per capita GDP (Y i/Ni) is an indicator of the demand in the importing country. With these formulations of the m odel, an elasticity coefficient great er than unity s uggests that the imported goods are luxury goods and a coeffici ent less than unity in dicates the goods are necessities (Breus and Egger, 1997). Breus a nd Egger (1997) also s uggest that existing multicollinearity between the GDP and population variables that is present in the model formulation of equation 2-5 is avoided by using the model specifi cation of per capita income and population as in equation 2-6. All three models, equations 2-4, 2-5 and 2-6, will be used to analyze the data. Dynamic effects Brada and Mendz (1988) proposed that the dynamic effects of economic integration impact to increase output ei ther through the growth of factor inputs or an increase in the rate of technological progress. The larger market implicitly available as a result of economic integration is assumed to create opport unities for cost reduction through economies of scale for firms (Balassa, 1961; Brada and Mendz, 1988) and prom ote increased investment from a reduction in the risk and an increase in th e return to capital (Brada a nd Mendz, 1988). The integration scheme is projected to have an overall positive impact on investment taking into consideration changes in trading partners co mmercial policies, the interaction of national capital markets consequent upon integration, the occurrence of fact or mobility and any short-term dis-investment on account of competition in the market (Brada and Mendz, 1988). They modeled the investment effects of economic integration over th e long-term using a flexible accelerator model

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46 in which the capital stock was assumed to be pr oportional to the expected or planned level of future output. The equation that Brada and Me ndz (1988) used for developing countries was: t i j t i t i t i t i t iCOUNj a t CU a CU a Y F a Y Y a a Y I, 4 4 3 2 1 0 ,/ / / / 2-7 where t iY I,/ = real gross domestic capital formation ( I ) divided by real gross domestic product ( Y ) in country i in year t t iY Y,/= growth of real gross do mestic product in country i in year t t iY F,/= real foreign capital inflow divided by real gross domestic product in country i in year t t iCU, = 0 if country i was not a member of the in tegration scheme in year t = 1 otherwise, )) 1950 /( ( /, t CU t CUt i t i COUNj= 1 when i = j, = 0 otherwise, t ie, = disturbance term This research focuses on a group of countries th at are all members of the same integration arrangement. As a consequence there is no need for the integration scheme membership dummies of the Brada and Mendz (1988) model. The resulting model for this aspect of the analysis will then be: t i i 4 t i t i 2 t i 1 0 t i t iCOUNi a Y / F a Y / Y a a Y / I 2-8 where

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47 t i t iY I, ,/ = real gross domestic capital formation (I) divided by real gross domestic product (Y) in country i in year t, t iY Y,/= growth of real gross do mestic product in country i in year t, t i t iY F, ,/= real foreign capital inflow divided by real gross domestic product in country i in year t, iCOUN=1 when the observation pertains to country i = 0 otherwise t i = disturbance term Technological progress is stimulated by increased competition, research and development and improved management practices (Corden, 1970; Martin, 1978) and an EIA is likely to promote increased firm sizes, gr eater specialization, and greate r industrial activity (Balassa, 1961; Brada and Mendz, 1988). Brada and Mend z (1988) posit that ec onomic integration should increase total factor productivity (TFP) an d that the dynamic eff ects can be estimated by examining the rate of technological progress. They modeled output growth as a function of growth of labor and capital inputs. Their implicit assumption is th at since these are critical for TFP they reflect TFP changes. Brada and Mendz (1988) evaluated the impact of integration on productivity growth using the equation: t i i j t i t i t i t iu COUNj b CU b L L b K K b b Y Y, 4 3 2 1 0 ,/ / / 2-9 where t iK K,/rate of growth of cap ital stock in country i in year t, t iL L,/rate of growth of labor force in country i in year t, COUNj= 1 when i = j,

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48 = 0 otherwise, t iu, disturbance term. Applying the same rationale as indicated a bove for the investment model the Brada and Mendz (1988) model for evaluating impact on pr oductivity growth will be modified to the following: t i i j 4 t i 2 t i 1 0 t iu COUNi b L / L b K / K b b Y / Y 2-10 where t iK K,/rate of growth of cap ital stock in country i in year t, t iL L,/rate of growth of population in country i in year t,7 iCOUN=1 when the observation pertains to country i = 0 otherwise t iu, disturbance term. Surveys Litchfield et al. (2003) report on the use of detailed multi-period household surveys to evaluate the impact of agricu ltural and other trade liberaliza tion policies on the dynamics of poverty in three developing countri es. Winters (1997) reports on the ranking of barriers to intraEuropean Union (EU) trade through a survey of EU businesses. This litera ture and the report of VanSickle et al. (2005) on the surv ey of the grower perspectives in the U. S. nursery industry informed the methodological approa ch used here with respect to the survey. Firms and policy makers were surveyed from each of the five countr ies included in this study. Two structured four 7 In the instance of unavailability of data on employm ent, population will be used as a proxy for labor.

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49 part questionnaires were designed, one for each of the two groups of respondents (See Appendix A). The questionnaires and informed consent prot ocol for the survey were reviewed by the University of Florida Institutional Review Board (UF-IRB) for compliance with ethical standards for human subjects research. The general focu s of the two survey instruments was similar although there were differences in the questions posed to the respective respondent groups. Firms For the firms, the first section sought char acteristics on the respondents. These data pertained to country and locati on of enterprise, sub-sector of operation, geographic scope of operations, number of workers em ployed and size of the firm ba sed on their annual sales volume in US dollars. For this variable firms were cat egorized into four groups. Firms with a sales volume less than US $ 1.0 million were included in the micro group and those with a sales volume greater than US $ 1.0 million but less than US$2.5 million were classified as small. Firms with a sales volume greater than US$ 2.5 million but less than US $6.5million were considered medium sized and those with a sa les volume greater than US$ 6.5 million were classified as large. Section II invited the respondent s ranking of concepts comm only accepted as critical to a business (Acs and Szerb, 2007; Alvarez and Crespi, 2003; Cook, 2001; Stel et al., 2007). Eleven critical success factor s were identified for ranking with respect to their impact on business operations, national policies impac ting on the factors, and CARICOM policies impacting on the factors. These factors were 1) The cost of capital 2) The exchange rate 3) Exchange rate management 4) The rate of inflation 5) The cost of unskilled labor 6) The cost of skilled labor 7) The cost of local inputs

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50 8) The cost of foreign inputs 9) The availability of technology 10) The ease of access to markets 11) Institutional structures or rules for operating businesses The Treaty of Chaguaramas broadly outlines a policy agenda in several areas in support of the preferential trading agr eement among member states of CARICOM. This policy agenda relates, inter alia, agricultural and industrial develo pment, services, tourism, trade and transportation. A summary of the respective policy goals was provide d to respondents with respect to: The tariff regime The rules of origin Joint negotiation of trade agreements Agriculture and fisheries Industry and services Tourism Transportation Establishment, capital a nd movement of persons Information on the CARICOM policies was distil led primarily from the Revised Treaty of Chaguaramas (CARICOM Secretariat, 2006h). Firms were also invited to rank their percep tion of the impact of CARICOM policy areas on their business operations. The policies areas indicated were: The implementation of the CET The Rules of Origin Trade Negotiations (WTO) Trade Negotiations (EU) Trade Negotiations (Other) Agriculture Fisheries Industry Services (Tourism & Hospitality) Services (Professional & other) Transportation

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51 For the questions in section II, the ranking scale was from -3 to +3 where -3 = a strong negative impact, 0= no im pact (neutral) and +3 a strong posi tive impact. Respondents were also able to indicate U if they had no view or were uncertain or N/A if not applicable. Section III sought responses on a desirable inve stment climate. Respondents were invited to rank the importance of the factors from thr ee perspectives, namely: their contemplation of future investment in their business environmen t, the influence of their national governments policies on the factors and their future investme nt decisions and the influence of the CARICOM policy agenda on the factor s and their future investment decisi ons. In addition, respondents were also invited to indicate whethe r any of the eleven specific CA RICOM policy areas listed above seem likely to influence their investment decisi ons. The scale for ranking the responses in this section was (+) = a positive impact, (0) = no impact (neutral) and (-) = a negative impact. Respondents were able to indicate U if they had no view or were un certain or N/A if not applicable. The fourth section of the questionnaire sought a comparative evaluati on on the impact of national and CARICOM policies with respect to th eir influencing the critical business factors important to the viability of their enterprise or firm. Responses were indicated on a scale of 1 to 4 where 1= least important and 4= very importa nt. A response of U or N/A was given if the respondent was uncertain or consid ered the question not applicable to their circumstances. This section also elicited respondents perspective on the contributi on of the CARICOM integration arrangements to: countries economic gains and the potential for increa sed investment in the country. Responses for either question were reco rded on a ranking scale of 1 to 4 where 1= no impact, 2 = minimally, 3 = somewhat and 4 = cons iderably. Those who were uncertain or had no

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52 view could have elected to res pond U. Respondents were also i nvited to make any general or specific comment to supplement their responses to the structured portion of the questionnaire. Policy makers For the policy makers the first section s ought general data and information on the respondents. These data pertained to country and ministry of assi gnment, years of service at the current ministry, service at anot her ministry, area of specializati on and highest level of academic training. Section II elicited respondent s perception of the impact of national policies on the business factors, the impact of the collective of CARICOM policies on the business climate, as filtered through the business factors, the extent to which the collective of CARICOM policies are perceived supportive or unsupportive of national policies in relati on to the cri tical business factors and specific CARICOM po licies having an impact on the national business climate. The listing of business factors was the same as was used with the firms, as was the CARICOM policy agenda and the CARICOM policy area s. Similarly, for the questions in this section, the ranking scale was from -3 to +3 where -3 = a strong ne gative impact, 0= no imp act (neutral) and +3 a strong positive impact. Respondents we re also able to indicate U if they had no view or were uncertain or N/A if not applicable. Section III invited responses on a desirable investment climate. Respondents were requested to rank the importance of the business factors from three perspectives. These were their perception of importance in relation to future investment in their country, the likely impact of their national governments po licies on the factors and the futu re investment climate in the country and the influence of the CARICOM policy agenda on the business factors and consequential future investment climate in th eir country. In addition, respondents were also invited to indicate whether any of the eleven sp ecific CARICOM policy areas listed earlier seem

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53 likely to influence the investment climate in th eir country. The scale for ranking the responses in this section was (+) = a positive impact, (0) = no impact (neutral) and (-) = a negative impact. Respondents were able to indicate U if they had no view or were un certain or N/A if not applicable. The fourth section of the policy makers que stionnaire sought a co mparative evaluation on the impact of national and CARICOM policies with respect to their influencing the critical business factors for the investment climate in their country. Responses were indicated on a scale of 1 to 4 where 1= least importa nt and 4= very important. A res ponse of U or N/A was an option if the respondent was uncertain or considered the question not a pplicable to their circumstances. This section also e licited respondents perspective on the contribution of the CARICOM integration arrangements to countries economic ga ins and increased invest ment in the country. Responses for either question were recorded on a ranking scale of 1 to 4 where 1= no impact, 2 = minimally, 3 = somewhat and 4 = considerably. T hose who were uncertain or had no view could have elected to respond U. Re spondents were also invited to make any general or specific comment to supplement their responses to th e structured portion of the questionnaire. Field testing and survey administration The questionnaires were field-tested, through individual or focus group discussions in each of the target countries and m odified based upon the feedback r eceived. One important change was the division of each of the questionnaires into two parts, the first d ealing with the current environment and the second with future investme nt. This change reduced the time required for the completion of each part and was advised as a prudent measure to encourage a greater response. The survey was administ ered electronically, initially through an on line survey service

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54 provider.8 Questionnaires were also distributed by email in a PDF file format, to facilitate ease of completion. A CARICOM Secretariat letter of support for the research being undertaken was transmitted with the PDF file. Fi eld visits, electronic and telephone contacts were undertaken in order to improve the response rate. In-Person Interviews Firm interviewees were questioned on their perception of CARICOM and the impact of the CARICOM arrangements on aspects of their busin ess. Policy makers were similarly questioned but in relation to national policy formulation and the business environment. A total of 47 firms and 18 policy makers were interv iewed across the five countries. Analysis of Survey Data Firms The scope of the analysis of the firms responses covered the demographics of the respondents, the current business environment a nd policy impacts thereu pon, the investment climate, a comparative policy impact eval uation and an economic impact overview. Econometric modeling was undertaken on the firms data pertaining to the current business environment.9 The econometric analyses were on four business variables only, namely: cost of capital (factor # 1), exchange ra te (factor #2), availab ility of technology (factor # 9) and access to markets (factor # 10). For this analysis, the respondents ranking of the importance of the business variable in their respective business or investment environment was designated the core rating of that variable. The model used for this econometric analysis was: Core rating of business variable = f [(country), (sub-se ctor), (firm size), (national po licy), (CARICOM policy). The subsectors used in the model were agriculture and manufacturing, services (tourism and hospitality) 8 The firm Survey Monkey was used for this service. 9 These data are from the firms Survey A.

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55 and services (professional). An ordered pr obit estimation was undertak en, given the ordinal nature of the dependent variable (Greene, 2003; Kennedy, 1998; Long, 1997). Mathematically, ordered probit models can be represented by the model: y*= x + 2-11 where y* is unobserved. Instead, cat egories in to which y* falls are observed such that y = 0 if y* 0. = 1 if 0 < y* 1 = 2 if 1 < y* 2 = J if J-1 y* The unknown values of the parameter are estimated with (Greene, 2003). In this model the disturbance term is assumed to be normally distribute d across observations with a normalized mean and variance of zero and one. Th e following probabilities then apply: Prob. (y = 0 x) = (x ). Prob. (y = 1 x) = (1x ) (x ). Prob. (y = 2 x) = (2x ) (1x ). Prob. (y = J x ) = 1( J-1x ), with 0 < 1 < 2 < j-1 (Greene, 2003). Similar econometric modeling was undertaken on th e investment environmen t responses, for the same variables.

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56 Policy makers The scope of the analysis of the policy makers responses covered the demographics of the respondents, the national and CARICOM policy impacts on the current business environment and investment climate, a comparative polic y impact evaluation and an economic impact overview. No econometric modeling was undertaken on the policy makers responses because of the paucity of the data. Data Three sets of data were util ized in this study. The sta tic trade effects of economic integration were analyzed using data on intra-CARICOM trade over the years 1982-2005 obtained from the UN Comtrade database. These data were s upplemented with intra-CARICOM trade data obtained from the CARICOM Secretariat. Data on trade tariff levels from the CARICOM Secretariat were also ut ilized in the construction of a tariff variable to reflect the implementation of the common external tariff (CET). There were three components to this variable, each comprising simple averages of applied tariffs.10 The first comprised a simple average of the applied tariffs computed from data for the year 1984 and applied over the years 1981 to 1992, under the assumption of no change in the CET over that period. The CET rate structure agreed to by the Head s of Government for application beginning January 1993 was used to compute a simple average of the applied tariffs over the period 1993 to 1998 and onwards (CARICOM Secretariat, 1993). This component was time we ighted to reflect the lag in implementation of the CET by the respective countries11 and comprised the second segment of the tariff variable. The third segment of this variable comprised data on the applied simple 10 The simple average is the sum of all applied tariffs divided by the number of tariff lines 11 A weighting coefficient was constructed by comparing th e countries effective timeline for implementing the CET decision with that agreed to in the decision.

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57 average tariffs obtained from the WTO for the period 2001-2005. In this instance, the average tariff levels that obtained in 2001 were assume d applicable through to 2005.The analysis was restricted to the period 1981 to 2005 since data from an earlier period were unavailable. The analysis of the dynamic impact of the CARICOM economic integration arrangements was assessed using national economic data from the World Banks World Development Indicators Online (2005) database. This is a co mprehensive collection of data in the area of social and economic development. Primary data were used in the evaluation of the business environment in CARICOM from the perspectives of entreprene urs and policy makers. These data were obtained through the administration of surveys and interviews of res pondents from entrepreneurs and policy makers in the five target countries. The scope of primar y data on entrepreneurs encompassed data on the size, location, scope and areas of operations of their firms and th e influence of critical business factors on their businesses. Data were also obtained on entrepreneurs perceptions of the impact of national level policies, CARICOM polic ies and CARICOM policy areas upon the same critical business factors pertai ning to their business environmen t and investment decisions. The surveys of policy makers yielded general da ta on their background, qualifications and specialization, experience, and th eir perspective of the source of policy influences on the same subset of factors deemed critical for a busine ss environment. Both sets of respondents were polled on their percep tion of whether the CCIAs have cont ributed to the economic growth and investment in their country. The interviews ha d a similar focus. Firm interviewees were questioned on their perception of CARICOM and the impact of the CARICOM arrangements on aspects of their business. Polic y makers were similarly questi oned but in relation to national policy formulation and the business environment.

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58 Figure 2-1: Trade-creati ng Union of A and B. Co nstant costs, Vinerian analysis. Source: (Bhagwati and Panagariya, 1999, Fig 2.1(a) p 40). Figure 2-2: Trade Diver ting Union of A and B. Constant costs, Vineri an analysis. Source: (Bhagwati and Panagariya, 1999, Fig 2.1(b) p 40). MA MA EC MFTA M0 EB PC PB PC + t PB + t Quantity Price 1 3 2 Effects on the Union 1+2= Tariff Revenue Loss to A 1+3=Gain in Surplus to A 3-2= Gain or Loss to A=Welfare Gain or Loss to Union O MA MA EC MFTA M0 EB PC PB PC + t PB + t Quantity Price 1 3 4 2 Effects on the Union 1+2= Tariff Revenue Loss to A 1+2+3+4=Gain in Surplus to A 3+4= Net Gain to A=Welfare Gain to Union O

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59 Figure 2-3: Union of Co untry A and Country B with Partne r Countrys Supply Curve Upward Sloping. Effect of union (A +B) with rising costs from partner country. Source: (Bhagwati and Panagariya, 1999, Fig 2.2, p 43). Quantity Price MA MA E t B E t C E t B P t C PC EC Q1 Q2 Q3 N L U H V F S E B R O D G EB K

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60 Figure 2-4: Union of Co untry A and Country C with third countrys supply curve sloping upward. Effect of union (A +C) with rising costs from third country. Source: (Bhagwati and Panagariya, 1999, Fig 2.3, p 44). Quantity Price MA MA E t B EB Pc P t c E t c G V F S H D U L N R Ec W Y Z K Q3 Q2 Q1 O

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61 Table 2-1 Gains from Trade under Unilateral Libe ralization and Free Trade Area (Country A and Country B) Country Nondiscriminatory tariff (Initial situation) (1) Free trade (FT) (2) Free trade area (A and B) (3) A KGS + GHNS KGS + GHNS + RSN (A gains) KGS + GHNS GFLH (A loses) B HUD HUD (no change) HUD + ( GFLHFLU) = GFUH (B gains) C 0 0 ( no change) 0 (no change) World KGS + GHNS + HDU KGS + GHNS + HDU+ RSN (world gains) KGS + GHNS + HDU FLU ( world loses) Table refers to Figure 2-3. Source (Bhagwa ti and Panagariya, 1999, Table 2.1 p 45). World welfare loss from FTA compared with FT: FL U+RSN. World welfare lo ss from FTA compared with Initial Situation: FLU Table 2-2 Gains from Trade under Free Trade Area (Country A and Country C) Country Nondiscriminatory tariff (1 ) Free trade area (A and C) (2) A KSG + GHNS KSG + GHNS+RSN+HWYZ (A gains) B HDU ZYD=HDU-WYU-HWYZ (B loses) C 0 0 (no change) World KGS + GHNS+HDU KGS+GHNS+HDU+RSN-WYU (World may gain or lose according as RSNWYU Table refers to Figure 2-4. Source (Bhagw ati and Panagariya, 1999, Table 2.2 p 47).

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62 CHAPTER 3 INTERVIEWS AND SURVEYS DATA ANALYSIS Introduction The results of the interviews and surveys are presented in three sections. The first section contains the analysis of the in formation collected through the inte rviews. This is followed by a presentation of the analysis of the responses to the surveys. The chapter concludes with the details of the econometric analysis of the survey responses to four of the business variables. Interviews Interviewees Profile A total of 47 firms and 18 policy makers we re interviewed across th e five countries. The firm interviewees were distributed as follows: Do minica (5), Guyana (17), Jamaica (6), St. Lucia (10) and Trinidad and Tobago (9). Eighteen poli cy makers were interviewed, distributed as follows: Dominica (3), Guyana (2), Jamaica (5), St. Lucia (4) and Trinid ad and Tobago (4). A representation of the firms and policy makers interviewed is pr esented in Tables 3-1 and 3-2 respectively. Interview Responses Four questions were posed to both groups of respondents. These pertained to thoughts with reference to CARICOM, a pers pective of CARICOM, providi ng input into the design of CARICOM policies and the impact of CARICOM arrangements on the business environment. The other questions were specific to each group. Question 1 (to firms and policy makers) on thoughts when reference is made to CARICOM: Response options were (a) grouping of stat es or (b) the agency facilitating the arrangements among the states. Seventy-nine per cent of firms and 72 percent of policy makers

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63 view CARICOM as a grouping of countries, meaning that 21 percent of firms and 28 percent of policy makers view CARICOM as an agency. Question 2 (to firms and policy makers) on a perspective of CARICOM, the Community: Response options were (a) good (b) inconsequential or (c) bad. Seventy percent of firms and 72 percent of policy makers were of the view that CARICOM the Community was good or a good concept. Points made in support were Larger market and greater pool of technical skills available to the manufacturer or service provider The opportunity for firms to acce ss a market greater than their national one allows them to catalyze their growth and equips them with the ability to eventually be competitive globally Prospects for economic growth in the region will be enhanced, particularly in light of the relatively small size of the individual members of the Community Those of a different view mainly thought it inconsequent ial. None thought it bad. Concerns were voiced pertaining to A perceived protracted proce ss influenced by the absence of political will, and the consequent lack of impact in fo rging increased economic cooperation. The perception that increased economic c ooperation is a middle class intellectual exercise in which the peasant or grass r oots of the society is mostly uninvolved. The bureaucratic burden imposed and the appare nt lack of focus on the optimization of national level resources. Question 3 (to firms) on CARICOM arrangements im pact on volume of business: Response options were (a) increased, (b) unchanged or (c) decreased. Thirty -eight percent of the firms were of the view that th e CARICOM arrangements increased the volume of their trade or business compared with those w ho thought that the volume of thei r trade or business had been either unchanged or declined. Issues cited in support of an increas e in trade or business included A gain in market share and improvement in competitiveness cons equent upon globalization

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64 Access to a larger (regional) market for pr oducts as well as a larger pool for sourcing product at a competitive price For the majority who responded unchanged or d ecreased, some of th e reasons cited were The firm has traditionally traded in the Caribbean and the CARICOM arrangements have not had any impact Increased protectionism among countrie s has led to a decrease in business The firm experienced an increase in busin ess but this cannot be attributed to the CARICOM arrangements The CARICOM arrangements do not impact tourism/hospitality service firms The CARICOM arrangements exis t on paper and generally do not affect companies unless there is a problem Question 3 (to policy makers) on the effect of CARICOM arrangement s on national policy development: Response options were (a) easier, (b) no ch ange or (c) more complex. Thirty nine percent of policy makers thought that their national policy deve lopment activities were made easier by the CARICOM arrangements compared with those who thought there was either no change or the national policymaking was more complex because of the CARICOM arrangements. Comments in support of na tional policymaking being easier included National policies being built on what exists at the regional level National policies being designed on a dvice from the CARICOM Secretariat Those who responded no change or it being more complex indicated There is considerable cha llenge to conform to a group position when the national circumstances dictate a di fferent policy prescription A single-mindedness of perspective at the natio nal level ignores regi onal policy positions A complex national economic environment and internal weaknesses in the economy suggest policy prescriptions different to t hose being proposed at the regional level Question 4 (to firms) on CARICOM arrangements effect on the cost of doing business: Response options were (a) increased, (b) not chan ged or (c) decreased. Fi fteen percent of the

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65 firms perceived that the CARICOM arrangemen ts reduced the cost of their doing business compared with the number of firms that though t the CARICOM arrangem ents had either not changed or increased the cost of their doing bus iness. Among the reasons cited for the perception of decreased costs were Sourcing of inputs from a me mber state at a reduced cost or free of import duties Reduction in the amount of bureaucracy when visiting other count ries in the region Reduced product cost per unit because of an increased volume of business with stagnant overhead costs For those who said either increased or not changed, reas ons given included Business costs with professional services or knowledge based businesses are not linked to the CARICOM arrangements Absence of cross border trading in the commodity The need to carry increased inventory on acc ount of seasonality of supply from member states Consumption taxes imposed in some countries Limited impact of ability to source regional inputs free of duty Question 5 (to firms) on CARICOM arrangements effe ct on their target market: Response options were (a) increased; (b) remained same or (c) decreased. Thirty-eig ht percent of the firms indicated that the CARICOM arrang ements increased their target ma rket as opposed to those that indicated either no effect or a decrease in their target market. Reasons suggested for an increase included The intra-regional preferential trade arrangements as well as an increase in intra-regional travel positively influenced market share gain Recent increases in orders from within the region and trade data show an increase in sourcing from regional suppliers More competitively priced products from with in the region, in so me instances partly attributable to the lower tariff

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66 Participation in regional trade shows Those who responded either remained the same or decreased supporte d this position with reference to The absence of intra-regiona l trading in the commodity Market access constraints on account of nontariff barriers in some countries CARICOM arrangements impacting on the tour ism/hospitality sector are virtually nonexistent The firms focus on a global mark et rather than a regional one Firms from larger states discriminate against firms from smaller states in their terms of trade for intra-regional consignments The absence of incentives to encourage the sourcing of goods manufactured in the region Question 6 (to firms) on the perception of member states of CARICOM being open to trade in goods or services: Response options were (a) simpler regulations, (b) re quire conformity similar to any other country or (c) create great difficulty for intra-regional trade. Fifty-seven percent of the firms perceived the creation of grea t difficultly for intra-regional trade in goods or services compared with those that indicated either easier regulations or c onformity similar to any other country. Among the reasons advanced fo r the perception of great difficulty were The maintaining of licensing systems for some commodities The need to contend with huge bureaucracies in many instances Non-uniformity of standards a nd rules applicable to the sa me commodity across the region Various non-tariff barriers for goods and services presumed erect ed to discriminate against firms and service providers from the regi on and protect vested national interests The absence of political will to open up the market The inability to easily ascertain a countrys requirements for trade in goods or services

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67 Those who said either simpler re gulations or require conformity similar to any other country, offered in support Reference to the development of CARICOM standards to facilitate intra-regional trade Simpler documentation for trade with some countries Less stringent standards than required for global trade Trouble free experience working regularly w ith two member states in the area of tourism/hospitality services Question 7 (to firms) and Question 4 (to policy makers) on opport unity to provide input into the design of CARICOM policies: Response options were (a) Yes or (b) No. Forty-seven percent of the firms indicated having an opportu nity to input into the design of CARICOM policy while 83 percent of the policy makers resp onded affirmatively. Those firms that indicated opportunity to input in the design of CARICOM policy were able to do so through Membership in a national or regional business association, although the transmission is not always unimpeded National mechanisms or consultations esta blished for this purpose or through various regional private sector fora Among the reasons cited by those firms that indicat ed the lack of opportun ity to input into the design of CARICOM policy were Absence of any clear channel of communicatio n in addition to the lack of any specific regional policy making body in th e tourism/hospitality sector Absence of any consultative mechanis m to permit communication of ideas Small manufacturers do not pe rceive themselves having an impact on CARICOM policy and are not seen as important to the national economy by the local policy maker Consultation opportunities offered are ineffectual While opportunities might be available many co mpanies lack the expertise or capacity to utilize them

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68 The professional services sector is not usually perceived to be within the services sector and therefore inputs from su ch firms are not sought The policy makers who indicate d opportunity to input into the design of CARICOM policy supported this with reference to Opportunity to review and comment on documentation circulated by the CARICOM Secretariat although the timeliness of circulation coupled with the lack of national capacity sometimes created constraints Participation in meetings of the COTED a lthough the timeliness of implementation and output, as a result of the ta rdiness of responses from so me countries, was lamented Participation in other regional fora. The implem entation of a formalized process to provide for an integrated system of policy design acr oss sectors was advocated. In this regard consideration could be given to the use of information technology as a time and cost efficient tool A few policy makers expressed reservations ab out being able to input into the design of CARICOM policy. These referred to The need for a greater involvement of states in the meetings of some of the CARICOM institutions through the establishment of co mmittees charged with the responsibility for policy design and more regular meetings partic ularly in association with regional agencies that might have an overlap in focus More effective national level consultation de signed to feed into the regional policy development A more concerted attempt to solicit and uti lize national level inputs in the process of regional level policy development National level budgetary constraints that sometimes limit the extent of national representation at regional policy development fora Question 8 (to firms) and Question 5 (to policy makers): on CARICOM arrangements strengthening the business environment. Response options were (a) Yes or (b) No. Fifty-three percent of the firms were of the view that the CARICOM arrangements did strengthen their business environment. Comments made in support of this view were A larger and easily accessible market with the re moval of duty on intr a-regional trade of products of regional origin

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69 An improvement in product standards, firm level productivity, increased competitiveness and the establishment of institutional arrangements (rules) facilitating to trade Easier access to a larger pool of skilled labor The joint negotiation of trade arrang ements at the international level Firms that did not perceive a strengthening of the business environment made reference to The focus of the CARICOM arrangements primar ily on commodity trading with less if any consideration of tourism/hospitality services or professional services The dearth of information and timely comm unication on the regional market supply and demand status pertaining to commodities of interest The non-uniformity of grades, standards and regu lations pertaining to agricultural health and food safety issues The need for increased consultations and institutional strengthe ning with a focus on improving the competitiveness of small businesses In contrast to firms, 62 percent of the polic y makers were of the view that the CARICOM arrangements did not strengthen the business environment. Those policy makers who perceived a strengthening of the business environment referred to An expanded market and the opportunity for sm aller firms to improve skills in order to become internationally competitive The greater facilitation of the movement of people among the countries of the region Stronger cooperation and collabo ration among member states in the area of fisheries Those policy makers who opined that the CA RICOM arrangements did not strengthen the business environment made reference to Greater benefits to be achieved if the national planning body were to lead in policy development focused on improving the business environment Internal weaknesses in the c ountrys macroeconomic environm ent that militate against the country deriving much benefit if any from many of the regional policies The non-attainment of benefits that were proposed in policy documents presented at regional fora

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70 Weak action on the stimulation of investment Firms Responses to the Supplementary Questions Question on the potential impact of non-tariff barriers on investments and growth: The following is a summary of the response of three firms, which were posed the question: Firm 1: Yes we did have to forego investment opportunities and constrai n our growth as a result of our experiencing non-tariff barrier s (NTBs). Our sales volume was lower and our possible expansion was restricted since market access was denied. The requirement that an agricultural chemical that is registered in one coun try must also be registered in another before it can be traded from the first to the second is more a constraint to th e growth of the firm. Firm 2: We have been seriously affected by th e NTBs that have surfaced and there has been an impact at the country level also. In some instances the country has lost the opportunity to reap benefits that could accrue fr om the use of the agricultural chem ical in question. This may be due to bureaucratic problems as is the case with St. Vincent and the Grenadines (one country) where the Pesticide Control Board has not met fo r in the last year because one individual has refused to convene the board meeting. Here th e action of one person has likely had a negative impact on a countrys gains and also my firms investment. The lack of registration of an agrochemical results in my firm being unable to market that product. This lack of registration has been used to bar our entry to the Jamaican market for the past 2-3 years. In turn this has affected the growth of my firm since our vision is to expand within the Caribbean. We are the only firm to market products like ours throughout the Ca ribbean (both English and Dutch) and with the advent of the CSME our company will be well po sitioned to take advantage of the opportunities that emerge. I question the need to register a pr oduct in each country. Th ere was talk of regional harmonization of pesticide legislation but nothing has materialized. Harmonization will allow for the registration in country A to be recognized in country B and an ag reed team of experts

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71 satisfactory to all interest groups can be used in the process. The current system that requires registration in each country takes more time, increases costs and is a barrier to trade. Firm 3: We experienced NTBs with five countri es. Our first shipment of juice and nonalcoholic beverages to one count ry was trouble free. Our second shipment attracted a special duty because it was from Guyana, considered a more developed country (MDC) within CARICOM. The imposition of the duty increased the price of our pr oduct, resulting in it becoming uncompetitive and the customer reducing the order. Our trading difficulties with four other countries revolved around challenges with meeting various labeling specifications. The general claim was that our labels did not meet CARICOM or national st andards. One country also objected to the classification of our product. Although we were aware of the existence of the CARICOM Regional Organisation for Standards and Quality (CROSQ) we did not seek their assistance or input, partly because we were unfam iliar with the functions of CROSQ. Instead, we used a local agent to investigate the claims and provide us with feedback towards a resolution of the difficulties. We eventually succeeded in en tering the Jamaica market but failed to penetrate the markets of Barbados, Grenada or Trinidad and Tobago, because of these difficulties. Policy Makers Responses to the Supplementary Questions Question on the characteristics of the Jamaican economy that work against the competitiveness of the private sector. Policy maker 1: Jamaicas problems are unique and debt is a major one. In general, a labor force and its work ethic are critical factors in competitiveness. Labor needs to be highly trained and disciplined. This is not so in Jamaica wh ich suffers from structural weaknesses in the economic environment. The population is not very educated. As a consequence it is more challenging for Jamaican managers to manage the workers, especia lly those at the lower level. In comparison, in China the people are more educated, more dedicated, work under hostile

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72 conditions for smaller wages and are easier to manage. These are soft elusive factors and cannot be addressed by regional policies. The qu ality of human resource is the foundation of competitiveness, at both the national and household levels. Consequently, it would be necessary to educate the Jamaican workforce and re-sociali ze the society in order to address the social challenges. Policy maker 2: This would be challenging. I am unaware of changes that would be compatible with local policies and circumstance s that would not affect other countries. Some issues such as the financial cr isis are not found in other states and if the (Jamaican) government is looking at tax policies to generate revenue this will have to be addresse d with Jamaica in mind. Consequently, the government may have to be narro w in focus. Perhaps there may have to be a more inclusive consideration of national circumstances when designing policy at the regional level, leading to the making of some measure of accommodation in regional level policy. This will be a challenge but it will be validated if a way can be found to consider national circumstances. Question on Jamaicas participation in the CARICOM Single Economy (CSE) in light of Jamaicas economic circumstances. Policy maker 1: Others may not share this view of the disadvantage d status of the Jamaican economy. Rather they may take a more mechani cal or prescriptive approach that will not stop Jamaica from participating in the CARICOM Singl e Economy (CSE). Howeve r, my view is that the country will not be competitiv e and that the trade imbalance will likely remain until Jamaica can solve its social problems. Policy maker 2: There is considerable divergence of monetary and fiscal policies among the CARICOM partners, yet there is talk of policy harmonization within the Community. This

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73 would be a major challenge in moving to a CSE given the existing diverg ence. Achieving this goal in the near future (our lifetime) would be extremely difficult. Another question is whether it is necessary to achieve this goal of a CSE. Perhaps there could be common policies in some aspects of financial sector integr ation such as with the stock ex changes, with selected taxation issues and perhaps with insura nce, without a formal CSE. Un less tangible benefits can be demonstrated to be achievable from a CSE there w ill be little incentive to attain that goal (of a CSE).12 Question on changes to the process of arri ving at CARICOM policy that can serve to reduce national level complexity and enhance the business environment. Policy maker 1: In order to improve the competitiveness of individual members within the CARICOM there will be need for policies that are not regional but focused on improving the weaker states. This suggests a sub-group approach to create an even playing field within the Community since the weaker countries need suppor t to alleviate social tensions within their economies. The application of generic medicine to disequilibrium is inadvisable. Country specific medicine is required. Policy maker 2: Inclusiveness is requir ed. Consultations with stakeholders should be increased when looking to develop such policie s. In addition, there should be increased sensitization of stakeholders to enhance their appreciation of the suit e of policies and their impact. 12 This comment was made during the initial interview. It is placed here on account of its greater relevance to this issue.

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74 Surveys Firms Characteristics One thousand one hundred and four firms we re contacted across the five countries. Thirty-eight declined to participat e. The valid responses received to Part A of the survey totaled 153 with 112 being submitted for Part B, making th e response rate 13.8 percent for Part A and 9.8 percent for Part B. For Part A, the largest proportion of responses ( 29.6 percent) came from Jamaica followed by Trinidad and Tobago (21.7 per cent), Guyana (18.4 per cent), St. Lucia (17.1 percent) and Dominica (13.2 percent). There was a si milar spread of responses to Part B but with the proportion from Dominica being slightly larger th an that from St. Lucia. In both instances, in excess of 75 percent of the res pondents were located in the urba n area. Respondents were invited to indicate the sub-sectors in which they operate, choosing from agriculture, fisheries, manufacturing, mining, services (tourism and hospitality), services (professional or other), trade and commerce and other. In descending order, th e four largest groups of respondents to Part A were manufacturing (36.2 percent), Services (T&H ) (27.0 percent), Servic es (P) (25.0 percent) and Trade and Commerce (18.4 percent). For Pa rt B the descending or der was manufacturing (39.5 percent), Services (P) (29.4 percent), Services (T&H) (2 3.9 percent) and Agriculture (22.0 percent). Among the respondents to Part A, 46.3 percent were micro firms, 16.8 percent small firms, 15.4 percent medium firms and 21. 5 percent large firms. For Part B the profile was 48.0 percent micro firms, 14.7 percent small firms, 16.7 perc ent medium firms and 20.6 percent large firms. These profiles are graphically depicted in Figure 3-1 and Figure 3-2 respectively. In comparison, the membership profile of the Trinidad and Tobago Chamber of Industry and Commerce (T&TCIC) is similarly skewed. That busin ess association has 524 members in seven

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75 categories.13 The T&TCIC the membership profile is skewed towards the smaller firms with representation in descending order given as Bron ze (30.5 %), Individual (17%), Gold (16.2%), Diamond (13.7%), Silver (13%), Platinum (5.5%) and Honorary (3.8%). The scope of operations of the T&TCIC membership sp ans 28 areas (Fe rreira, 2007). The operations were not all confined to one country since 19.0 per cent of respondents to Part A and 22.9 percent of res pondents to Part B operated in a nother country. For these, the locations of the other oper ating base or bases include d other Caribbean countries14, South America, North America, Asia, Europe and Africa.15 Eighty-seven percent of the firms employed full-time year round workers. At the higher end, the number of year round employees ranged from 2,500 to 1,200. These were all large firms, many with operations across sub-sectors such as agriculture and manufact uring, manufacturing and trade a nd commerce, or agriculture, manufacturing, services (touris m and hospitality) and services (professional). Some of these operated in only one sub-sector and a few in more than one co untry. Micro firms dominated in the one to ten full time employment range. Howe ver, these too were involved in operations across sub-sectors namely: agriculture and manufact uring, agriculture and services (professional) and manufacturing and trade a nd commerce. Some however were single sub-sector firms in either manufacturing or services (tourism and hospitality) or services (professional). In addition, about 50 percent employed part-time year round workers also. Full-time seasonal employment 13 The categories are Diamond (greater than US$ 16.7 million annual gross income or 100 employees), Platinum (US$16.5-US$8.3 million annual gross income or 60 employees), Gold (US$ 8.2 million US$ 1.7 million annual gross income or 25 employees), Silver (US$ 1.7-US$ 0.5 annual gross income or 11-25 employees), Bronze (less than US$0.5 annual gross income or10 or less employees), Individuals and Honorary members. 14 Including CARICOM countries. 15 For example: Brazil, Colombia, Cost a Rica, Honduras, Venezuela; Canada, USA; China, Sri Lanka: UK: Kenya and Nigeria.

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76 was exhibited by at least 21 percen t of the firms while at least 31 percent engaged in part-time seasonal employment. Policy Makers Demographics Seventy-six policy makers from the five countri es were sent questionnaires. One declined to participate. Thirty-four valid responses were received to Part A and 26 to Part B, making the response rate 44.7 percent to Part A and 34.2 percen t to Part B. For Part A the largest proportion of responses were from Trinidad and Toba go (42.4 percent) follo wed by Dominica (21.2 percent), Guyana (18.2 percent), Jamaica (12.1 percent) and St. Lu cia (6.1 percent). For Part B Trinidad and Tobago again led the responses with 40.0 percent, followed by Guyana (24.0 percent), Dominica (20.0 percent) with Jamaica a nd St. Lucia each at 8.0 pe rcent. For Part A of the survey the three larg est sets of responses were from th e Ministry of Trade (40.6 percent) followed by the Ministry of Agriculture (34.4 percen t) and the Ministry of Tourism (9.4 percent). For Part B it was the Ministry of Agriculture (38. 5 percent), the Ministry of Trade (34.6 percent) and the Ministry of Tourism (11.5 percent). Pr ofiles of the ministry representation for the respective surveys are presented in Figure 3-3 and Figure 3-4. The respondents indicated their years of experience from a se lection of five categories, namely: less than 2.5 years, greate r than 2.5 but less than 5 years, greater than 5 but less than 7.5 years, greater than 7.5 years but less than 10 y ears and greater than 10 years. In both surveys, total of 62 percent of the respondents had an ex cess of 5 years experience as depicted in the profiles presented in Figures 3-5 and Figure 3-6. However, also in both in stances an excess of 65 percent of the respondents served in only one minist ry, that in which they were currently located. Economics, Management, Agriculture and Agricultu ral Economics were the dominant fields of academic training in descending order, in both instances.

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77 All but two of the resp ondents were trained at least to the first-degree level and many benefited from postgraduate training, either in their fields of specialization or in a related field. A profile of the respondents to Policy Survey A, by area of specialization, is presented in Figure 37. For this survey, the number of degree holders in the top areas of speci alization ranges from a high of 14 in economics to a low of 4 in each of agriculture and agricultural economics. This is graphically represen ted in Figure 3-8. A profile of the respondents to Policy Survey B, by area of specializa tion, is presented in Figure 3-9. For this survey, th e number of degree holders in the top areas of specialization ranges from a high of 13 in economics to a lo w of 2 in agricultural economics. This is graphically represen ted in Figure 3-10. Firms Evaluation of Current Business Environment Baseline view and perception of policy impacts Baseline ranking of critical factors: The respondents were inv ited to evaluate their business by rating the impact of the eleven factors identified as critical to the conduct and profitability of businesses and investments, using the specifie d ranking scale. The summary of responses presented in Figure 3-11 indicates the pe rception of a definite negative impact for all the factors except technology, which showed a positive impact and access to markets where the negative impact was weak. Some respondents cited other factor s that affected their business operations, namely Non tariff barriers Bureaucracy and archai c customs regulations Labeling and phytosanitary regula tions in destination markets Shipping facilities and costs

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78 Limited government vision and policy pertaining to tourism as well as weak local tourism support systems and structures. Inadequate dissemination of in formation on CARICOM policies. Unsupportive investment climate. Ranking of government policies on critical business factors: Respondents were requested to rank their perception of the impact of their national governme nt policies on the same set of critical business factors, using the same ranking scale. The summary of responses presented in Figure 3-12 also indicates the pe rception of a definite negative impact of governments policies on all the factors. Here however that perc eption was less pronounced for technology and access to markets. Some respondents offered comments on addi tional areas pertaining to government policy such as Tardiness in the establishment of rules for electronic commerce Lack of adequate systems for consultation with the private s ector on issues pertaining to growth of the economy and the absence of a long term vision for growth and economic transformation Weak public policy in respect of some segments of the service sector and tourism in particular Inadequate policy and financ ial support to firms e xport marketing initiatives Weak secondary education system contributi ng to a skills gap in the labor market Ranking of CARICOM policies on critical business factors: A summary of the CARICOM policy agenda as genera lly outlined in The Treaty of Cha guaramas was provided to respondents with respect to a) the tariff regi me, b) rules of origin, c) joint negotiation of trade agreements, d) agriculture and fisherie s, e) industry and serv ices, f) tourism, g) transportation, and h) establishment, capital and movement of pers ons. Respondents were invited to rank their perception of the impact of the CARICOM policie s on the critical busines s factors, using the same ranking scale as with the previous questio ns. The summary of the responses presented in

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79 Figure 3-13 shows a neutral view in relation to the impact of the CARICOM policies on six of the eleven critical factors, namely: cost of capit al, exchange rate and its management, inflation, cost of unskilled labor and the availability of technology. There was a definite positive perception with respect to the access to markets and a negative perception in relation to three factors: cost of skilled labor, co st of local inputs and cost of foreign inputs. Respondents were ambivalent on the impact of CARICOM policies on institutional arrangements or rules. In addition, the level of responses in the uncertain/not -applicable category wa s, on the average, noticeably higher for this question than the previous ones. Observ ations offered to complement some respondents response to this question were The continued existence of prot ectionism within the CARICOM market in the form of both quantitative and qualitative barriers to trade The cost of transportation A perceived bias to companies from othe r CARICOM countries contributing to price inflation in the respondents country Ranking of CARICOM policy areas on business operations: Firms were invited to rank their perception of the impact of the eleven CARICOM policy areas on their business operations. The summary of the responses is presented in Figure 3-14. In three policy areas, there was a definite positive percep tion of impact on business operations namely: the CET, the Rules of Origin and Services (Professi onal & other). Industry showed a weak positive perception of impact and there was a negative perception of the impact of the WTO trade negotiations. Perception of impact was neutral in the areas of EU and Other Trade Negotiations, Agriculture, Fisheries, Services (Tourism and Hospitality) and Transportation. Comparative evaluations National vs. CARICOM policies: Respondents were invited to compare the importance of their national governments policies versus th e CARICOM policies with respect to their

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80 influencing the critical business f actor important to the viability of their enterprise. The response data are presented graphically in Figure 3-15. The data are stacke d in columns so that those who responded least important, are represente d in the lowest segment of the column.16 Those who responded are in the second lowest segment. The respondents are in the third segment going up and the respondents are in the f ourth segment going up. The uppermost segment reflects the U/NA respondents. Response categ ories 3 and 4 reflect those respondents most optimistic about the impact of the two groups of policies. Focusing on these two groups of respondents, the data show a perception of greater national policy influence on ten of the eleven critical factors. In the instance of the other factor, market access, there appears to be a perception of greater CARICOM policy influence. Overview of Impact of CARICOM Arrangements: Respondents were invited to indicate their perception of the contribu tion of the CARICOM economic inte gration arrangem ents to the economic gains of their country. A summary of the responses is presented in Figure 3-16. Overall a relatively conservative response was offered with the majority (67%) indicating that the contribution was either minimal or som ewhat. A minority (15%) thought the contribution was considerable and fewer still (7%) thought there was no impact. Evaluation of Investment Environment Baseline view and perception of national policy influence Enterprise outlook on desi rable investment climate: The respondents were invited to rank the importance of the critical factors in relation to their contemplation of future investment in their current business environment. The summary of responses presented in Figure 3-17 indicates that six of the critical factors are perceived to have a positive im pact on future investment. These 16 Recall the ranking scale for this question is 1 to 4 where 1 = least important and 4 = very important.

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81 are the cost of capital, exchange rate management, the cost of skill ed labor, the availability of technology, ease of access to markets and institutiona l structures or rules for business operations. The exchange rate, inflation, and cost of inputs both local and foreign were perceived to have a negative impact on th e desirable investment climate. Th e respondents were evenly divided on their perception of the impact of the cost of unskilled labor on th e desirable investment climate. Some respondents indicated other issues that influence a desirable investment climate, namely Access to skilled labor and the availability of training f acilities to upgrade skills of the labor force The availability of supplies or inputs Adequate law enforcement to establish a secure environment and contain crime National government policy that promotes exports as opposed to one that is biased towards imports The availability of venture capital from financing institutions Improved scope of institutional framework to encompass business partnerships with international investors Improved infrastructure at the air and sea ports and for inland transportation Better formulated and articulated governme nt policy together with improved national interagency collaboration Government policy supportive of th e agro industry in particular Better telecommunica tions and utilities support systems Government policy influence on desirable investment climate: Respondents were asked to rank their perception of the impact of their gove rnments policies on thei r future investment decisions. The summary of responses shown in Figure 3-18 convey that there is a negative perception of the influence of gove rnment policy on all but three of the critical factors that firms consider in their future investme nt decisions. The three critical fact ors that are perceived to have

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82 an overall positive influence of government policy are exchange rate management, availability of technology and access to markets. Respondents offered comments on other policy issues that impact their future investment decisions, namely No articulated tourism policy and the absen ce of institutional or other support for destination marketing The unpredictability of polic y continuity in the event of a change of government Generally weak policy measures and incentives for investment The absence of an export promotion framewo rk to support private sector investment initiatives CARICOMs influence on a desi rable investment climate Perceived impact of CARICOM policy agenda: The respondents were asked their perception of the summarized po licy goals of CARICOM and their impact on the critical business factors relevant to influencing their i nvestment decisions. A summary of the responses is provided in Figure 3-19. Overall the collective CARICOM policies are pe rceived to have a positive impact on the critical business factors in relati on to investment decisions of fi rms. Inflation is the only area perceived otherwise and in this instance the gr eater proportion of responde nts is neutral. A few respondents offered additional comments, namely Lack of cohesiveness among countries in so me instances of bloc negotiations with business entities external to the region Increased cooperation in the en ergy sector between Jamaica and Trinidad and Tobago is perceived as a positive catalyst Countries are perceived to be operating singularly Enhanced sea and air links and more develope d intra-regional trading mechanisms needed Some governments (Jamaica) should devote more resources to sensitizing and informing the populace (on critical) national issues

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83 Perceived impact of CARICO M policy areas on investment: Firms were invited to rank their perception of the impact of CARICOM policy areas on their investment decisions. The summary of the responses is pres ented in Figure 3-20. In all polic y areas except fisheries there is an overwhelming positive perception of influence on firms investment decisions. In fisheries the neutral perception is greater than the positive one. Overview of CARICOM policie s potential impact on investment: Respondents were invited to provide an overview of the potential for co ntribution of the CARICOM economic integration arrangements to increased invest ment in their country. A summar y of the responses is presented in Figure 3-21. The data show that the greater proportion of the respondent s is either somewhat (47 %) or considerably (32 %) optimistic about the CARICO M integration arrangements positively influencing future investment in their countries. A very small minority, of 7 percent in each grouping, are either uncertain or antici pate minimal or no impact of the CARICOM arrangements on future investment. Supplemental Comments and Observations Respondents were invited to provide any addition al general or specific comments to supplement their responses. Th e comments are summarized and gr ouped for easier assimilation. Comments pertaining to Institutional Struct ures or Rules for conducting business Despite stated polices to facilitate the movement of people and capital it is feared that the implementation by civil servants will block the process There is a need for a revisi on of the CARICOM double taxation treaty. Currently it is a disincentive to investment Incomplete maritime boundary delimitation agreements hinder efforts at enhanced management of the fisheries resources The path to integration in CARICOM has been too protracted. The achievement of integration will be a boon to business and investment, particularly with the unrestricted movement of capital. Howeve r, the transportation problem needs to be solved

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84 Additionally, greater a ttention ought to be focused on f acilitating the private sector operations Rationalization is not enough! We need unifica tion in several critical business areas. Specifically the need for a single st ock exchange with unified rules There is a general feeling that CARICOM is a waste of tim e because one does not feel the impact of CARICOM except during th e ICC World Cup Cricket when visa requirements were instituted The implementation and enforcement of common legislation and agreements should have a positive impact on both business and social stru ctures in the region. This will alleviate petty and vindictive actions by policy makers and governmental heads. Generally there is need for constitutional reform in all the re gional governments, to allow for greater discussion of policy issues within the governments and legislatures Comments related to Policy and Incentive issues Unity in the region and collabo ration on the use of raw materi als and other resources for national and regional be nefit is supported A greater effort should be made to encourage consumers to utilize products and services from the region and discourage extra-regional competition Reference should be made to the joint custom s union that is expected to have a positive impact on regional trade. The benefits of CA RICOM have not yet been fully realized due to the inability of our policy makers to utilize the tools adequately The CSME provides Guyana w ith the opportunity to forge industrial partnerships among CARICOM countries. This goal should be support ed through the evolu tion of an industrial policy encompassing movement of capital, skills and integrated development Governments need to drive the integration process at a faster rate Comments referring to Speci al Considerations issues Notwithstanding articulated CARICOM policies, national level circumstances will thwart investment growth Since no provision is made in any of the CA RICOM agreements for special treatment of the LDCs such as Dominica, the benefits to be derived for Dominica will remain minimal The regional approach to negotia tions has facilitated and enabled the voice of the region to be heard and it has redefined the terms of e ngagement with tremendous benefits for the Region. However, at the operational level member states are faced with significant constraints to adopt and implement these measures. CARICOM now needs to focus on capacity building in member states of the OECS in particular

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85 Comments pertaining to Market Access Protectionism in some countries creates cond itions unfavorable to wider market access and the promotion of investment opport unities to potential investors Positive economic growth will be attained following the devotion of greater attention to opening the regional market and reducing the barriers thereto We cannot plan major investments for the smaller Caribbean territories with low populations. We find it more useful to ta rget high volume ma rkets beyond CARICOM countries such as Haiti, Dominican Republic, and Cuba in the region and the EU and North America outside. The prospects of trading w ith China, Japan, Br azil and others would relegate trade within CARICO M to leftovers if any. Economies of scale must take precedence Comments on Transportation Challenges We know the Caribbean, although lin ked closely, is not reachable by sea due to lack of scheduling of international lines. We need to connect the islands cl osely and enhance the movement of CARICO M products regularly Additional comments Trinidad, as the most industria lized CARICOM country stands to gain significantly from the improvement of intra-CARICOM trade. Ho wever, current policies of the government have fuelled inflation and contri buted to a significant increase in the cost of both skilled and unskilled labor The changing dynamics of the many sectors of our regional and local economies makes it difficult to predict the imp act of CARICOM as you seek. Disparities will negatively impact at first but gradually improvement will bring about acceptance and prosperity Policy Makers Evaluation of Current Business Environment Perception of policy impacts National policies on the business climate: The respondents were in vited to evaluate the impact of the national policies they were form ulating and implementing on the critical business factors in their respectiv e countries. The summary of the resp onses in Figure 3-22 indicate that for all but two critical business factors the perception of the policy makers is that the national policy impact is strongly positive. For two of thos e factors, namely exchange rate and exchange rate management, the majority of the respondents were neutral a bout their perception of impact.

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86 CARICOM policies on the business climate: The summary of the policy agenda outlined in the Treaty of Chaguaramas was also presented to the respondents to policy makers survey. Respondents were invited to rank their percepti on of the impact of the CARICOM policies on the business climate as represented by the critic al business factors, us ing the ranking scale as previously indicated. The summary of respons es presented in Figure 3-23 indicates an overwhelming positive perception of the CARICOM polices on all the critical business factors except exchange rate. For this factor, more respondents were neutral as opposed to positive about the impact of CARICOM policies. CARICOM policies impact on national government policies: Respondents were invited to rank their perception of CARICOM policies, co llectively, being suppor tive or unsupportive of those of their national government in relation to the critical bus iness factors. The ranking scale used was the same as with the previous questio ns. From the summary of responses presented in Figure 3-24 it will be observed that there is a positive perception that CARICOM policies are supportive of national government po licies with respect to all of the critical business factors. However, there is a stronger demonstration of this perception for four critical factors: the cost of unskilled labor, the cost of skilled labor, access to markets, and institutional structures or rules for conducting business. Impact of specific CARICOM po licy areas on business climate: Policy Makers were invited to rank their perception of the impact of the eleven specific CARICOM policy areas previously identified, on the bus iness climate in their country. The summary of the responses is presented in Figure 3-25. For a ll the critical business factors th at shape the business climate the overwhelming response was the perception of a pos itive impact. In the instance of both types of services there was no percep tion of any negative impact.

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87 Comparative evaluations National vs. CARICOM policies: Policy respondents were invited to compare the importance of the national policies they design and implement versus the CARICOM policies with respect to the polic ies influencing the critic al business factors in th eir country. The response data are presented graphically in Figure 3-26. The data are stacke d in columns so that those who responded least important, are represente d in the lowest segment of the column.17 Those who responded are in the second lowest segment. The respondents are in the third segment going up and the respondents are in the f ourth segment going up. The uppermost segment represents the U/NA respondents. Response categories 3 and 4 reflect those respondents most optimistic about the impact of the two groups of policies being compared Focusing on these two groups of respondents, the data show a perception of greater national polic y influence on nine of the eleven critical factors. In the instance of the other two fact ors, cost of skilled labor and market access, the CARICOM policy influe nce is perceived to be greater. Overview of impact of CARICOM arrangements: Respondents were invited to indicate their perception of the contribu tion of the CARICOM economic inte gration arrangem ents to the economic gains of their country. A summary of the responses is presented in Fi gure 3-27. The data show that 52 percent of the respondents think that the CARICOM arra ngements contribute somewhat to the economic gains of the countries while 24 percent think that the co ntribution is considerable. Evaluation of investment environment Policy makers outlook on a desirable investment climate: The policy respondents were invited to rank the importance of th e critical factors in relation to firms contemplation of future 17 Recall the ranking scale for this question is 1 to 4 wh ere 1 = least important, 4 = very important and U/NA = uncertain or not applicable.

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88 investment in the country, using the threepoint scale described above. The summary of responses presented in Figure 3-28 indicates that all but one of the critical factors are perceived to have a positive impact on future investment. The cost of foreign inputs was the only critical factor perceived to have a negative impact on th e desirable investment climate. Three additional issues were cited as having an impact on th e future investment climate. These were New legislation Unclear government policy Crime Perceived impact of national policies on investment climate: Policy Makers were then invited to rank their perception of the policie s they were engaged in formulating on the investment climate in their country, again usi ng the three-point scale. The summary responses presented in Figure 3-29 indicate a positive per ception of policy impact for only eight of the critical business factors, namely: inflation, the cost of unskilled labor, th e cost of skilled labor, the cost of local inputs, the cost of foreign inputs, the availability of technology, access to markets and rules for conducting business. In two areas, exchange rate and exchange rate management the perception was that of a negativ e policy impact while fo r cost of capital the majority view was equally divided between a positive impact and no impact (neutral). Influence of CARICOM polic ies on investment climate: Respondents views were sought on the impact of the collective CARICOM policies on the critical business factors, pertaining to the investment climate, using the three-point sc ale. The summarized responses are presented in Figure 3-30. For this question ther e was no separation of labor into unskilled and skilled or of inputs into local and foreign. The re sponses indicate a positive perception of CARICOM policies on seven of the critical factors, namely: th e cost of capital, infla tion, the cost of labor, the cost of inputs, the availability of technol ogy, access to markets and institutional arrangements

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89 or rules for conducting business. On exchange rate management, the views were equally divided between positive and no impact or neutral and on e xchange rate the perception of no impact dominated. Perception of influence of CARICOM policy areas: Respondents were in vited to identify any of the previously specif ied CARICOM policy areas that seem likely to influence the investment climate in their country. The summary of the responses are presented in Figure 3-31. All of the CARICOM policy areas are perceived to have a positive impact on the future business climate. Overview of CARICOM policies pote ntial impact on investment Policy respondents were invited to provide an overview of the potential for contribution of the CARICOM economic inte gration arrangements to increased investment in their country. A summary of the responses is pres ented in Figure 3-32. Forty-four percent of the respondents are of the view that the policies will impact som ewhat on future investme nt. Twenty-four percent are equally divided on the policie s influencing considerably and minimally while 4 percent are equally divided between no impact and uncertain. Firms Disaggregated Perception of CARICO M Policies: Current Business Environment Disaggregation by Country The firms that responded to Survey A were gr ouped by country of location. This facilitated an analysis, from a country pers pective, of their perception to CARICOM level policies as well as to the CARICOM arrangements contribution to economic gain. Critical factors The Dominica respondents perceive a negative imp act of the CARICOM policies on: the cost of capital, inflation, the cost of local inputs, the cost of fo reign inputs, the availability of technology and institutional stru ctures or rules for conducti ng business. They have a

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90 predominant neutral view of t hose policies impact on the exch ange rate and exchange rate management and a positive perception of the CARICOM policies impact on the cost of unskilled and skilled labor and acc ess to markets (see Table 3-3). The Guyana respondents perceived a negative imp act of the CARICO M policies only on the cost of skilled labor. There was a percepti on of a neutral impact on: the exchange rate, exchange rate management, inflation, the cost of unskilled labor and the co st of local inputs. The impact on: the cost of capital, the cost of fore ign inputs, the availabil ity of technology, access to markets and institutional structures or rules for conducting business was perceived as positive by this sub-group (see Table 3-3). The respondents from Jamaica had a negative perception of the impact of the CARICOM policies on: the cost of capital, th e cost of skilled labor the cost of local i nputs and the cost of foreign inputs. They were neutra l concerning exchange rate, infla tion and the cost of unskilled labor but had a positive perception of the impact of CARICOM policies on the availability of technology and access to markets. In addition, they were equally divided between being negative and neutral regarding exchange rate management and institutional struct ures (see Table 3-3). The St. Lucia respondents had a negative perception of the impact of CARICOM policies on nine of the critical factors, namely: the cost of capital, inflation, the cost of unskilled labor, the cost of skilled labor, the cost of local inputs, the cost of fo reign inputs, the availability of technology, access to markets and institutional struct ures or rules for conducting business. There was a neutral perception of th e CARICOM policies on the exchange rate and exchange rate management (see Table 3-3). The Trinidad and Tobago respondents did not pe rceive an overall ne gative impact of the CARICOM policies on any of the cr itical business factors. A pre dominantly neutral impact was

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91 perceived for the impact on: the cost of capital, the exchange rate, exchange rate management, the cost of local inputs, the cost of foreign inputs, the availab ility of technology and institutional structures or the rules for the conduct of business. A positive impact was perceived on: the cost of unskilled labor, the cost of skilled labor a nd access to markets. The perception was equally divided between negative and neut ral for inflation (see Table 3-3). In summary, the perception of the countries about the impact of CA RICOM policies on the critical factors differed markedly across countri es. At one extreme, the Trinidad respondents were predominantly either neutral or positive in their perception of the impact of the policies. In contrast, the St. Lucia responde nts viewed most CARICOM polic y areas as having a negative impact and did not perceive any having a pos itive influence. Res pondents from Dominica, Guyana, and Jamaica were at differe nt positions on this continuum. CARICOM policy areas Dominica respondents had a positive perception of the impact of the CARICOM policy areas, except for transportation that was negativ e and fisheries that was neutral (see Table 34).Guyana respondents had a positive perception of two CARICOM policy areas: the CET and the rules of origin. There was a no impact or neutral perception of: the WTO trade negotiations, the EU trade negot iations, Other trade negotiati ons, Fisheries, Industry and Transportation. Opinions were equally divided for Agriculture (no impact and positive) and Services (Professional) (positive and uncertain/ not applicable). There was an uncertain/ not applicable view for Services (Tourism and hospitality) (see Table 3-4). The Jamaica respondents had a positive percep tion of the impact of four CARICOM policy areas: the CET, the Rules of Origin, the EU trade negotiati ons and Other trade negotiations. There was a predominant negative perception of the WTO tr ade negotiations. These respondents indicated a no impact or neutral respons e for five areas: Agriculture, Fi sheries, Industry, Services

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92 (Tourism and hospitality) and Tran sportation. Opinion was equally divided between no impact and positive for Services (Professional) (see Table 3-4). No CA RICOM policy area was perceived to have had a positive impact by the St. Lucia respondents. A negative impact was perceived from: the WTO trade negotiations, the EU trade negotiations, Other trade negotiations, Industry and Services (tourism and hospitality). Opinion was e qually divided between negative and positive for the CET and betw een negative and no impact for Services (Professional). A no impact or neutral view wa s expressed for: the Rules of Origin, Agriculture, Fisheries and Transportation (see Table 3-4). Trinidad and Tobago respondents had a positive view of six CARICOM policy areas, namely: the CET, the Rules of Origin, Other trade negotiations, Industry, Services (Professiona l) and Transportation. Opinio n was equally divided between negative and positive with respect to the WTO trade negotiations. A no impact or neutral view was expressed for: the EU trade negotiatio ns and Agriculture. There was an uncertain/ not applicable response for Fisheries and Serv ices (Tourism and hospita lity) (see Table 3-4). Summing up, Dominica respondents indicated the largest number of positive responses (9) to the perception of the im pact of CARICOM policies follow ed by Trinidad and Tobago (5), Jamaica (4) and Guyana (2). St. Lucia did not indicate any positive perception and three countries were neutral in at le ast four areas (See Table 3-4). Contribution to economic gain Dominicas respondents were weakly optimistic about the CARICOM arrangements contributing to the economic gain of the country with 39 percen t perceiving a minimal contribution and 23 percent indicat ing somewhat (see Figure 3-33). Guyanas respondents were similarly weakly optimistic about the contribution of the CARICOM arrangements to the countrys economic gains with 29 percent responding minima lly and 41 percent indicating somewhat (see Figure 3-34). The perception in Jamaica mirrored that in Dominica with 42

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93 percent indicating minimally and 23 pe rcent somewhat (see Figure 3-35). For St. Lucia, 25 percent of the respondents indicated minimally and 59 percent said s omewhat (see Figure 336). The respondents from Trinidad and Tobago were the most optimistic with 45 percent indicating minimally, 20 percent somewhat an d 30 percent considerab ly (see Figure 3-37). Disaggregation by Firm Size The firms that responded to Survey A were grouped by firm size. This facilitated an analysis, from a firm size perspective, of their perception to CARICOM level policies as well as to the CARICOM arrangements contribution to economic gain. Critical factors From the perspective of the Micro firms, the CARICOM policies have a definite negative impact on all but two of the critical factors. Th e perception of no impact or neutral dominates for the exchange rate. For markets, equal weight is given to negative a nd positive perceptions (see Table 3-5). Small firms have a perception of a negative impact on: the cost of capital, the cost of local inputs and the cost of foreign input s, as indicated in Table 3-5. Th ere is a neutral or no impact perception for exchange rate, exchange rate ma nagement and inflation. A positive impact is perceived on the availability of technology, access to markets and institutional structures or rules for doing business. The cost of uns killed labor is equally weighted by no impact and positive while the cost of skilled la bor is also equally weighted by negative and positive. Medium firms have no overriding negative perc eption of the impact of CARICOM policies. There is a positive pe rception of CARICOM policy impact on the cost of capital, the cost of foreign inputs, the avai lability of technology and access to markets. A no impact or neutral perception prevails for exchange rate management, inflation, the cost unskilled labor, the cost of local inputs and institutional structur es or rules for doing business. The exchange rate

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94 is equally weighted negative a nd no impact or neutral. The cost of skilled labor is also similarly equally weighted, as indicated in Table 3-5. Large firms also have no overriding negative perception of the im pact of CARICOM policies, as indicated in Table 3-5. There is a positive perception of CARICOM policy impact on the cost of skilled labor, the co st of foreign inputs, access to mark ets and institutional structures or rules for doing business. A no impact perception exists for: the cost of capital, exchange rate, exchange rate management, inflation, the cost of unskilled labor and the availability of technology. The cost of local inputs is e qually weighted no impact and positive. CARICOM policy areas The Micro firms perceive a positive impact from three CARICOM Policy areas, namely: the CET, Services (Tourism and hospitality) and Se rvices (Professional), as indicated in Table 36. They view the WTO trade negotiations as having a negati ve impact. The policy areas perceived to have no impact are the Rules of Origin, Other trade negotiations, Agriculture, Fisheries and Industry. The EU trade negotiations and Transporta tion are both equally weighted as having a negative and no impact. Small firms have a positive perception of th e impact of six CARICOM policy areas, namely: the CET, the Rules of Origin, the EU trade negotiations, Other trade negotiations, Industry and Transportation. Th is group has a perception of no impact for Agriculture, Fisheries and Services (Profe ssional).The perception of th e impact of the WTO trade negotiations is equally weighted as no impact and positive wh ile that of Services (Tourism and hospitality) is equally weight ed no impact and uncertain/ not applicable (see Table 3-6). Medium sized firms perceive a positive impact of the CARICOM policy areas of the CET, the Rules of Origin and Industry, as seen in Table 3-6. These respondents had a no impact or neutral perception for the EU trade negotiations, Other trade ne gotiations and Transportation.

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95 The WTO trade negotiations policy area is equally weighted as no impact and positive while Services (Professional) received three equal weight s of no impact, positive and uncertain/ not applicable. Both Fisheries and Services (T ourism and hospitality) were most heavily ranked uncertain/ not applicable. Agriculture was equa lly weighted as positive and uncertain/not applicable. Large firms have a positive perception of th ree CARICOM policy areas: the CET, the Rules of Origin and the EU trade negotiations. Six policy areas are perceived as having no impact or neutral namely: Other trade negotiati ons, Agriculture, Fisheries, Industry, Services (Tourism and hospitality) and, Transportation. The WTO trad e negotiations policy area is equally weighted negative and positive and Se rvices (Professional) is equally weighted no impact and positive, as indicated in Table 3-6. Contribution to economic gain Micro firms could be considered weakly optim istic about the cont ribution of CARICOM arrangements to their countries economic gain s with 46 percent indicating minimally and 26 percent somewhat (see Figur e 3-38). The respondents from Small firms demonstrated a stronger expectation of the cont ribution of the CARICOM arrangeme nt to economic gain with 39 percent indicating somewhat and 23 percent minimally (See Figure 3-39). The responses of the Medium firms mirrored those from the Micro firm s with 51 percent indicating minimally and 25 percent somewhat (see Figure 3-40). Large firms were the most optimistic with 40 percent indicating somewha t and 20 percent consid erably (see Figure 3-41). Disaggregation by Sub-sector The respondents to Survey A were grouped by s ub-sector of operation. This facilitated a sub-sectoral analysis of thei r perception to CARICOM level policies as well as to the CARICOM arrangements contri bution to economic gain. Eight sub-sector groupings were

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96 considered, namely: Agriculture, Manufacturing, Services (Tourism and hospitality), Services (Professional), Trade and Commerce, Agricultur e and Manufacturing (tog ether), (7) Services (together), and Manufacturing/ Trade & Commerce (together). Critical factors Among the firms involved only in Agriculture there was the perception of a negative impact on five critical business factors, namely: the cost of capital, exchange rate management, the cost of local inputs, the av ailability of technology and institutional structures or rules for conducting business. A perception of no impact or neutral was there for exchange rate and inflation and a positive impact was perceived for the cost of forei gn inputs and access to markets. The perception of the impact on the cost of skilled labor was equally weighted between negative and positive and th e predominant view about unskilled labor was uncertain or not applicable ( See Table 3-7). For Manufacturing firms there was a negative perception of impact for inflation, the cost of local inputs, the cost of foreign inputs and th e availability of technol ogy. For three critical factors, namely: the cost of cap ital, exchange rate and exchange rate management the perception of impact was equally weighted between negativ e and no impact or n eutral. There was a definite positive perception of impact for the co st of unskilled labor, the cost of skilled labor, access to markets and institutional structures or rules for the conduct of business (See Table 3-7). For Services (T&H) there was a negative perception of impact for the cost of capital, inflation, the cost of skilled labor, the cost of local inputs, the cost of foreign inputs and institutional structures or rule s for doing business. A no impa ct or neutral perception was indicated for, exchange rate, exchange rate ma nagement and the cost of unskilled labor. A positive perception was indica ted for only two critical factors namely: the availability of technology and access to markets (See Table 3-7).

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97 The Service (P) firms did not indicate the percepti on of any negative impacts. A no impact or neutral perception was indicated for the cost of capital, exchange rate, exchange rate management, inflation, the cost of unskilled labor and the availability of technology, as seen in Table 3-7. A positive perception of impact was i ndicated for the cost of skilled labor, the cost of local inputs, the cost of foreign inputs, acc ess to markets and instit utional structures or business rules. Firms in Trade and Commerce perceived a negative impact for the exchange rate, as indicated in Table 3-7. A posit ive impact was perceived for the cost of foreign inputs and access to markets. A no impact or neutral perc eption was indicated for the cost of unskilled labor, the cost of local inputs, the availability of technology, in stitutional structures or business rules. Four critical business fact ors were perceived equally weight ed, namely: the cost of capital (neutral and positive), exchange rate mana gement (negative and positive), inflation (negative and no impact) a nd the cost of skilled labor (negative and no impact). Some respondents indicated involvement in more than one sub-sectoral area, consequently responses were analyzed in three groupings na mely: agriculture together with manufacturing, Services (All) and Manufactur ing together with Trade and Commerce ( See Table 3-7). The Agriculture and Manufacturing grouping indicated a negativ e perception of impact on the cost of capital, the cost of skilled labor, the cost of local inputs, the cost of foreign inputs and institutional structures or business rules, as seen in Table 3-7. A no impact or neutral perception was given for exchange rate, exchange rate management, inflation and the cost of unskilled labor. The perception of a positive im pact was indicated for access to markets only. Availability of technology was equally weighted negative and neutral.

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98 For the Services grouping there was a neg ative perception of imp act for the cost of skilled labor and the cost of foreign inputs, as shown in Table 3-7. A positive perception was indicated for the cost of local inputs, access to markets and institutional structures or rules for business. Six critical business factors were give n a no impact or neutral rating namely: the cost of capital, exchange rate exchange, exchan ge rate management, inflation, the cost of unskilled labor and the avai lability of technology. The Manufacturing / Trade and Commerce grouping had a negativ e perception of the impact on the cost of local inputs and the cost of foreign inputs, as seen in Table 3-7. There was a positive perception only for access to mark ets. This group had a no impact or neutral perception for the cost of capital, exchange rate, ex change rate management, inflation, the cost of unskilled labor and the availability of technology. The critical f actor Institutional structures or business rules was equally weighted negative and positive CARICOM policy areas The Agricultural firms do not perceive any of th e CARICOM policy areas as having a positive impact on their business, as seen in Table 3-8. Transportation is viewed as having a negative impact and the impact of Services (T&H) is perceived as un certain/not applicable. Three areas are perceived to have no impact or neutral namely: the WTO trade negotiations, the EU trade negotiations and Industry. Six ar eas are equally weighted namely: the CET (no impact and uncertain/not applicable), the Ru les of Origin (negative and no impact and uncertain/ not applicable), Other trade negotia tions (no impact and positive), Agriculture (negative and positive), Fisheries (no impact and uncertain/ not a pplicable) and Services (professional) ( positive and uncertain/ not applicable). The Manufacturing group does not perceive any of the CARICOM policy areas as having a negative impact on their businesses. Four pol icy areas are perceived to have a positive

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99 impact namely: the CET, the Rules of Origin Other trade negotiations and Industry. Those perceived as having no impact or neutral are Agriculture, Fi sheries, Services (tourism & hospitality) and Transportation. Three areas are equally weighted namely the WTO trade negotiations (negative and positive) the EU trade negotiations (no impact and positive) and Services (Professional) (no impact and positive) (See Table 3-8). For Services (T&H) there are seven areas with a neg ative rank namely: the WTO trade negotiations, the EU trade negotia tions, Other trade negotiations, Industry, Services (Tourism & hospitality), Services (Professiona l) and Transportation, as indicat ed in Table 3-8. The Rules of Origin is ranked no impact or neutral while three areas are equally weighted namely: the CET (no impact and positive), Agriculture (no impact and uncertain/not applicable) and Fisheries (negative and uncer tain/not applicable). No pol icy area was thought to have a positive impact on their businesses (See Table 3-8). In contrast, for Services (P) no policy area was seen as ha ving a negative impact on business operations. Three perceived to have a p ositive impact were the CET, the EU trade negotiations and Services (Professional). Eight areas were thought of as having no impact or neutral namely the Rules of Origin, the WT O trade negotiations, Other trade negotiations, Agriculture, Fisheries, Industry, Services (Touris m & hospitality), and Transportation, as seen in Table 3-8. The Trade and Commerce group also did not perceive any policy area as having a negative impact, as indicated in Table 3-8. Both the CET and the WTO trade negotiations were thought of as having a positive impact. Five ar eas were perceived of as having no impact namely: Agriculture, Fisheries, Industry, Servi ces (T&H) and Transportation. Four areas were equally weighted these being th e Rules of Origin (no impact and positive), the EU trade

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100 negotiations (positive a nd uncertain/not applicable), Othe r trade negotiations (no impact and positive) and Services (Pro fessional) (no impact and uncertain/not applicable). The Agriculture and Manufacturing grouping indicated a negativ e perception of impact of the WTO trade negotiations. This group perceived a positive imp act of the CET, the Rules of Origin and Other trade negotiati ons. Seven areas were seen as having no impact namely: the EU trade negotiations, Agriculture, Fisheries, Industry, Services (Tourism & hospitality), Services (Professional) and Tr ansportation (See Table 3-8). For the Services (All) grouping there was a negative perception of impact for the WTO trade negotiations and a positiv e perception for the CET, the EU trade negotia tions, Industry, and Services (P). Those areas se en as having no impact were th e Rules of Origin, Other trade negotiations, Agriculture, Fisheries, Services (Tourism & hospitality) and Transportation (See Table 3-8). The Manufacturing / Trade and Commerce grouping had a negativ e perception of the impact of the WTO trade negotiations and a positive perception for the CET, the Rules of Origin and Other trade negotia tions. This group perceived six areas as having no impact namely, Agriculture, Fisheries, Industry, Services (Tourism & hos pitality), Services (Professional) and Transportation. The EU trade negotiations were equally weighted negative and no impact (See Table 3-8). Contribution to economic gain Firms in Agriculture were weakly optimistic about the contribution of the CARICOM arrangements to their countrys economic gain with 57 percent of the respondents indicating a perspective of a minimal contribution and 29 pe rcent indicating somewha t as shown in Figure 3-42. Manufacturing firms were definitely more optimis tic about the CARICOM arrangements contributing to economic gain since, as s een in Figure 3-43, only 14 percent indicated

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101 minimally while 33 percent indicated somewhat and 24 percent said considerably. Firms in Services (tourism & hospitality) were less optimis tic than those in Manufacturing but more so than those in Agriculture. In the Services (Tourism & hospitality) group 50 percent indicated minimally, 19 percent said somewhat and 6 percent chose considerab ly (see Figure 3-44). The Services (Professional) group was also fairly optimistic about the CARICOM arrangements contributing to economic gain with 62 percen t indicating minimally and 15 percent each choosing somewhat and considerably as s hown in Figure 3-45. The response from the Trade and Commerce group was equally weighted at 25 percent each to no impact, minimally, somewhat, and considerably as seen in Figure 3-46. The se lection within the Agriculture and Manufacturing group was 27 percent minimally, 36 percent somewhat and 16 percent considerably (see Figure 3-47). For Services (All) 49 percent indicated minimally, 27 percent somewhat and 16 percent considerably, as in Figure 3-48. The response from the Manufacturing/ Trade and Commerce group was 22 percent minima lly 36 percent somewhat and 20 percent considerably as in Figure 3-49. Further disaggregation of the firms survey resp onses, not reported in the figures or tables, indicted that five percent of the respondents repo rted operations in another country with one such respondent in of each of the targ et countries and the greater numbers being from Trinidad and Tobago and St. Lucia. Another characteristic hi ghlighting the diversity of the firms was that these respondents were spread across each of the firm size groupings, and were predominantly from manufacturing, services (Pro fessional) and trade and commerce.

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102 Firms Disaggregated Perception of CARICO M Policies: Investment Environment Disaggregation by Country The respondents to Survey B were grouped by c ountry of location in order to analyze the responses, from a country perspective, of their perception of the impact of CARICOM policies on the critical factors pe rtaining to investment. Critical factors Dominica respondents were the only country sub-gr oup to perceive an entirely positive impact of CARICOM policies on their inve stment decisions. The perception of the Guyana respondents was positive for six factors: cost of cap ital, exchange rate, the cost of local inputs, the cost of foreign inputs the av ailability of technology, access to markets and rules for doing business. These gave a neutral response to infl ation, a negative response to both unskilled and skilled labor and were equally divided between positive and negative on exchange rate management. The Jamaica respondents had a positive perception fo r five factors: cost of capital, inflation, cost of skilled la bor, availability of technology a nd access to markets. They were neutral about exchange rate, the cost of unskilled labor, the cost of local inputs and the cost of foreign inputs. Jamaican firms were equally divided between positive and neutral on exchange rate management and rules for doing business. Firms in St. Lucia were positive about six factors: the co st of unskilled labor, the cost of skilled labor, the cost of foreign inputs, the availability of technol ogy, access to markets and rules for doing business. They were neutral abou t exchange rate management and inflation and equally divided on cost of capital (positive/ neutral/ negative), exchange rate (positive / neutral) and the cost of local inputs (positive/ neutral).

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103 Firms from Trinidad and Tobago were positive about only three factors: the cost of skilled labor, the availability of tec hnology and access to markets. They had a negative perception about the cost of unskilled labor and were neutral a bout the remaining seven factors (see Table 3-9). CARICOM policy areas The firms responses to the perception of CARICOM policy areas influencing their investment decisions, when disa ggregated by country, show a pr edominantly positive profile (see Table 3-10).Except for fisheries where the vi ew is equally divide d ( positive/negative) Dominica is entirely positive. Guyana is negative for movement of pers ons; neutral for the CET, rules of origin, agriculture, and fisheries; and positive for the remainder of factors. Except for the neutral view on fisheries Jamaica is also entirely positive. St. Lucia is neutral on fisheries, industry and services (T&H), equally divided (positive/neut ral) on trade negotiations and positive on the remainder of CARICOM policy areas. Trinidad and Tobago is neutral on fisheries and positive on the remainder of CARICOM policy areas. Disaggregation by Firm Size The grouping of respondents of Survey B by fi rm size facilitated an analysis of the responses to CARICOM po licies and policy areas on investment from a firm si ze perspective. Critical factors Micro firms displayed a predominantly positive view of the impact of CARICOM policies on the critical factors pe rtaining to their investme nt decisions as indicated in Table 3-11. These firms were neutral for inflation a nd the cost of uns killed labor. Small firms displayed a greater variation in perception. These were positive for four factors: the cost of unskilled la bor, the availability of technology, access to markets and rules for doing business. They were neutral about exchange rate and equally divided on the cost of capital (positive/negative), exchange rate management (pos itive/ neutral/ uncertain), inflation (positive/

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104 uncertain), the cost of skilled labor (positive/nega tive), the cost of local inputs (positive/neutral) and the cost of foreign inputs (pos itive/ neutral) (see Table3-11). Medium firms had a negative perception for the cost of unskilled labor, the cost of local inputs and the cost of foreign inputs. They had a positive percep tion for the remaining factors (see Table 3-11). Large firms displayed a neutral perception except for the cost of skilled labor and access to markets where a positive per ception was indicated (see Table 3-11). CARICOM policy areas As indicated in Table 3-12 th ere is a predominantly positiv e view of the influence of CARICOM policy areas on the invest ment decisions of firms when disaggregated by firm sizes. Except for fisheries where the view is neutral, Micro firms have a positive perception. Small firms also have a positive perception except for fi sheries and services (T& H) where they have a neutral view. Medium firms have an entire ly positive perception. Large firms have a mainly positive perception except for agriculture and fisheries where they are neutral. Disaggregation by Sub-sector The responses to Survey B were grouped by s ub-sector of operation. This allowed a subsectoral analysis of the perception of CARICO M policies on the critical factors pertaining to investment and of the influence of the CARI COM policy areas on inve stment decisions. Critical factors Among the firms involved only in Agriculture the CARICOM policies were perceived to have a positive impact on eight of the critical fact ors: cost of capital, cost of unskilled labor, cost of skilled labor, cost of local i nputs, cost of foreign inputs, av ailability of technology, access to markets and rules for conducting business. Ther e was a neutral perception for the remaining three: exchange rate, exchange rate manage ment and inflation (see Table 3-13). Firms in Manufacturing showed a similar profile except that they were neutral on cost of capital and rules

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105 for doing business and equally divi ded (positive/ neutral) on av ailability of technology (see Table 3-13). The firms in Services (T&H) displayed a positive pe rception for all the factors except cost of unskilled labor and cost of skilled labor where there was a neutral view (see Table 3-13). Table 3-13 indicated that for firms in Services (P) there was a positive perception across the board. Firms in Trade and Commerce were neutral for inflation and the cost of local inputs, negative for the cost of unskilled labor, equally di vided ( positive/neutral) for the cost of foreign inputs and positive for the remainder of factors (see Table 3-13). The Agricultural and Manufacturing grouping displayed a positive perception for cost of unskilled labor, cost of skilled labor, availability of technology, access to markets and rules for doing business. These were neutral about exchange rate, exchange rate management and inflation and equally divided about cost of capital (positive/neutral) and cost of foreign inputs (positive/neutral) (see Table 313). For the Services (All) grouping there was a positive perception for all factors except neutral for the cost of unskilled labor and an equal divisi on (positive/neutral) for inflation (see Table 313). The Manufacturing /Trade and Commerce grouping displayed a positive perception about the CARICOM policy influence on seven factors: exchange rate, exchange rate management, cost of unskilled labor, cost of skilled labor, availability of technology, access to markets and rules for doing business. These firms were neutral about cost of capital an d inflation and equally divided on the cost of local inputs (positive/ neutral) and the cost of foreign inputs (positive/neutral) (see Table 3-13). CARICOM policy areas A predominantly positive perception profile was displayed for CARICOM policy areas across all firm sub-sector groupings, except for fi sheries as indicated in Table 3-14. Firms in both Services (T&H) and Trade and Commerce indicated a positive perception for fisheries. The other firm groupings displayed a ne utral perception (see Table 3-14).

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106 Econometric Analysis of Survey Responses Equation 2-11 was estimated by ordered probit re gressions using TSP ve rsion 5.0 for four critical business variables namely: cost of capital exchange rate, availab ility of technology and access to markets. The dependent variable was the firms core ranking of the respective critical business variable and the explan atory variables were the associ ated rankings for national policy impact and CARICOM policy impact. Dummies were included to represent the countries, firm sizes and three firm type groupings. Those were agriculture and manufactur ing, services (T&H) and services (P). The results for the current busi ness environment are presen ted in Tables 3-15 to 3-22 for cost of capital, exch ange rate, availability of technology and access to markets respectively. The results for the investment envi ronment are detailed in Tables 3-23 to 3-30 for those variables in the respective order. The resu lts indicate that in all other instances the perception of influence of national policy is statistically significant at either the 1 percent level or the 5 percent level as de tailed in the tables. In contrast, excep t for the availability of technology, in no instance is the CARICOM policy perceived to be influential at least at the 10 percent statistically significant level. CARICOM policy pertaining to the availability of technology is perceived of influence at the 5 percent statistica lly significant level. Th e probabilities associated with the estimated parameters and those associated with the core level of importance assigned to the variables, were also calculated with the othe r explanatory variables set at their mean value. The probabilities were calculated for each of the variable rankings or impact categories. The resulting probability distribution functions are illu strated for the cost of capital and availability of technology variables in the current business environment, at the leas t and most influential levels of perceived variable impact, in figures 3-50 through 3-53. Figures 3-54 through 3-57 illustrate the probability distribution functions associated with the cost of capita l and access to markets variables for the investment environment for the least and most influentia l levels of perceived

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107 variable impact. There is no pattern evident from a comparison of the respective probability distribution functions of the respect ive variables, across perceived le vels of variable influence. Implications The consensus among the interview respondent s about the concept of the Caribbean Community was not shared pertaining to its imp act on the business environment. This suggested that there was need for a more comprehensiv e examination of CARI COMs influence on the business environment, to ascertain reasons for the differences in perception. The results of the survey pointed to considerable heterogeneity among firms in the c ountries studied. Some of these differences pertained to firm size, geographical scope of opera tions and areas of operations. There is also considerable diversity among the economic char acteristics of the countries, reflected in some of the interv iewees comments. Overall among firm s, there is a general lack of confidence in the influence of CARICOMs policie s on the economic gain of the countries, given the thrust of the responses to the questions in the survey. The empirical findings pertaining to the four business variables reinforce the view of entrepreneurs of the role of na tional policy in shaping their business environment since only in the inst ance of the availability of technology is CARICOM policy perceived to have any statistically significant influence. This suggests that each business variable should be specifically cons idered in the policy formulation process since there is no general tendency ev ident across the vari ables based upon an examination of the simulated probability distribution functions. In addition, the respondents who offere d supplemental comments and observations conveyed that attention should be directed to some of the ru les pertaining to policy for conducting business within CARICOM. Movement of persons and capital, taxation and the stock exchange were among the areas identified for ex amination of the inst itutional arrangements. Other issues suggested for policy attention were

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108 Incentives to promote indigenous raw material use, production integration and cross-border partnerships, all within the c ontext of economies of scale The existence of differential national circumst ances and constraints that preclude adoption and implementation of regional measures Capacity enhancement of states, es pecially the members of the OECS The special challenge of transportation requi rements to facilitate inter-regional trade Micro 47% Small 17% Medium 15% Large 21% Figure 3-1. Profile of si ze of firms: Survey A Micro 47% Small 15% Medium 17% Large 21% Figure 3-2. Profile of si ze of firms: Survey B

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109 Finance 6% Agriculture 34% Industry 3% Tourism 9% Planning 3% Trade 42% Other 3% Figure 3-3. Ministry representation profile of Policy A respondents Agriculture 37% Finance 4% Industry 8% Tourism 12% Trade 35% Other 4% Figure 3-4. Ministry re presentation profile of Policy B respondents

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110 Under 2.5 yrs 16% Over 2.5/ Under 5 yrs 22% Over 5/ Under 7.5 yrs 19% Over 7.5/ Under 10 yrs 9% Over 10 yrs 34% Figure 3-5. Experience profile of Policy A respondents Under 2.5 yrs 15% Over 2.5/ Under 5 yrs 23% Over 5/ Under 7.5 yrs 23% Over 7.5/ Under 10 yrs 8% Over 10 yrs 31% Figure 3-6. Experience prof ile of Policy B respondents

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111 Agriculture 13% Marketing 3% Economics 48% Sociology 3% Management 17% Natural Science 3% A gri. Economics 13% Figure 3-7. Areas of specialization profile of Survey A respondents 0 1 2 3 4 5 6 7 8 9 10A g r i c u l t u r e A g r i E c o n o m i c s E c o n o m i c s M a n a g e m e n tAreas of SpecialisationNumber of Degree Holders Bachelors Masters Doctoral Degree Figure 3-8. Degree profile Survey A: Top areas of specialization

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112 Agriculture 13% Marketing 3% Economics 44% Fishereis Biology 3% Management 17% Natural Science 3% Agri. Economics 7% International Relations 10% Figure 3-9. Area of specializat ion of Survey B respondents 0 2 4 6A g r i c u l t u r e E c o n o m i c s M a n a g e m e n t A g r i E c o n o m i c s I n t e r N a t R e l a t i o n sAreas of SpecialisationNumber of Degree Holders Bachelors Post Grad. Dip. Masters Doctoral Degree Figure 3-10. Degree profile Survey B: Top areas of specialization

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113 0 20 40 60 80 100Capital Ex. Rate Ex. Man agement Inflation Uns k i l led L abour S killed Labour Local Inputs Foreign Inputs T e chnology Mar k et s R ul e sCritical Business FactorsResponse Levels Negative Neutral Positive Uncertain/Not applicable Figure 3-11. Summary of impact evaluation of critical business f actors on business operations 0 10 20 30 40 50 60 70 80 90C a p i t a l E x R a t e E x M a n a g e m e n t I n f l a t i o n U n s k i l l e d L a b o u r S k i l l e d L a b o u r L o c a l I n p u t s F o r e i g n I n p u t s T e c h n o lo g y M a r k e t s R u l e sCritical Business FactorsResponse Levels Negative Neutral Positive Uncertain/Not applicable Figure 3-12. Perception of the influence of national government policies on critical business factors

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114 0 20 40 60C a p i t a l E x R a t e E x M a n a g e m e n t I n f l a t i o n U n s k i l l e d L a b o u r S k i l l e d L a b o u r L o c a l I n p u t s F o r e i g n I n p u t s T e c h n o lo g y M a r k e t s R u l e sCritical Business FactorsResponse Levels Negative Neutral Positive Uncertain/Not applicable Figure 3-13. Perception of the influence of CARICOM policies on critical business factors 0 10 20 30 40 50C E T R u l e s o f O r i g i n W T O N e g o ti a t i o n s E U N e g o t i a t i o n s O th e r N e g o t i a t i o n s A g ri c u lt u r e F i s h e r i e s I n d u s t r y S e r v i c e s ( T & H ) S e r v i c e s ( P ) T r a n s p o r ta ti o nCARICOM Policy AreasResponse Levels Negative Neutral Positive Uncertain/Not applicable Figure 3-14. Perception of the influence of CARICOM policies on firms business operations

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115 0 10 20 30 40 50 60 70 80 90National CARICOM National CARICOM National CARICOM National CARICOM National CARICOM National CARICOM National CARICOM National CARICOM National CARICOM National CARICOM National CARICOM Cost of Capital Exchange Rate Ex. Management InflationUnskilled Labour Skilled LabourLocal InputsForei gn InputsTechnologyMarketsRules Critical Factors by Policy SourceStacked Response Levels 1 2 3 4 U/NA Figure 3-15. Firms comparison of perceived policy impacts by polic y source. Recall that the ranki ng scale here is 1 to 4 where 1 = least important, 4 = very important and U/NA = uncertain /not applicable.

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116 No Impact 7% Minimally 37% Somewhat 30% Considerably 15% Uncertain 11% Figure 3-16. Firms perception of the contribution of CARICO M integration arrangements to countries economic gains 0 10 20 30 40 50 60C a p i t a l E x R a t e E x M a n a g e m e n t I n f l a t i o n U n s k i l l e d L a b o u r S k i l l e d L a b o u r L o c a l I n p u t s F o r e i g n I n p u t s T e c h n o lo g y M a r k e t s R u l e sCritical Business FactorsResponse Levels Positive Neutral Negative Uncertain/Not applicable Figure 3-17. Enterprise perception of importa nce of critical business factors for future investment

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117 0 10 20 30 40 50C a p i t a l E x R a t e E x M a n a g e m e n t I n f l a t i o n U n s k i l l e d L a b o u r S k i l l e d L a b o u r L o c a l I n p u t s F o r e i g n I n p u t s T e c h n o lo g y M a r k e t s R u l e sCritical Business FactorsResponse Levels Positive Neutral Negative Uncertain/Not applicable Figure 3-18. Perception of gove rnment policy influence on fu ture investment decisions 0 20 40 60C a p i t a l E x R a t e E x M a n a g e m e n t I n f l a t i o n U n s k i l l e d L a b o u r S k i l l e d L a b o u r L o c a l I n p u t s F o r e i g n I n p u t s T e c h n o lo g y M a r k e t s R u l e sCritical Business FactorsResponse Levels Positive Neutral Negative Uncertain/Not applicable Figure 3-19. Perception of CA RICOM policies influence on business factors related to investment

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118 0 20 40 60C E T R u l e s o f O r i g i n T r a d e N e g o t i a t i o n s M o v e m e n t o f C a p i t a l M o v e m e n t o f P e r s o n s R i g h t s o f E s t a b l i s h m e n t A g r ic u l t u r e F i s h e r i e s I n d u s t r y S e r v i c e s ( T o u r i s m & H o s p i t a l i t y ) S e r v i c e s ( P r o f e s s i o n a l ) T r a n s p o r t a t i o nCARICOM Policy AreasResponse Levels Positive Neutral Negative Uncertain/Not applicable Figure 3-20. Perception of the influence of CARICOM policy ar eas on investment decisions No Impact 7% Minimally 7% Somewhat 47% Considerably 32% Uncertain 7% Figure 3-21. Firms perception of the influen ce of CARICOM integration arrangements on incountry investment

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119 0 8 16 24 32C api t a l E x. R a t e E x M a n a gem en t I nf l a t i o n U ns ki l l e d L ab our S k i l l ed L a bour L o c a l I np ut s F or e i g n I np ut s T e c hn ol ogy M ar k et s R ul e sCritical Business FactorsResponse Levels Negative Neutral Positive Uncertain/Not applicable Figure 3-22. Perception of national polic y impact on critical business factors 0 5 10 15 20 25C a p i t a l E x R a t e E x M a n a g e m e n t I n f l a t i o n U n s k i l l e d L a b o u r S k i l l e d L a b o u r L o c a l I n p u t s F o r e i g n I n p u t s T e c h n o lo g y M a r k e t s R u l e sCritical Business FactorsResponse Levels Negative Neutral Positive Uncertain/Not applicable Figure 3-23 Policy makers per ception of CARICOM policies on critical business factors

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120 0 10 20 30C a p i t a l E x R a t e E x M a n a g e m e n t I n f l a t i o n U n s k i l l e d L a b o u r S k i l l e d L a b o u r L o c a l I n p u t s F o r e i g n I n p u t s T e c h n o lo g y M a r k e t s R u l e sCritical Business FactorsResponse Levels Negative Neutral Positive Uncertain/Not applicable Figure 3-24. Perception of CARI COM policies impact throu gh national policy on critical business factors 0 5 10 15 20 25C E T R u l e s o f O r i g i n W T O Ne g o t i a t i o n s E U N e g o t i a t i o n s O t h e r N e g o t i a t i o n s Ag r i c u l t u r e F i s h e r i e s I n d u s t r y S e r v i c e s ( T & H ) S e r v i c e s ( P ) T r a n s p o r t a t i o nCARICOM Policy AreasResponse Levels Negative Neutral Positive Uncertain/Not applicable Figure 3-25. Perceived impact of specifi c CARICOM policy areas on business climate

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121 0 5 10 15 20 25 30National CARICOM National CARICOM National CARICOM National CARICOM National CARICOM National CARICOM National CARICOM National CARICOM National CARICOM National CARICOM National CARICOM Cost of Capital Exchange Rate Ex Rate Management InflationUnskilled Labour Skilled Labour Local InputsForeign Inputs TechnologyMarketsRules Critical Factors by Policy SourceStacked Response Rankings 1 2 3 4 U/NA Figure 3-26. Policy makers comparison of perceived policy impact s by policy source. Recall that the ranking scale here is 1 to 4 where 1 = least important, 4 = very important and U/NA = uncertain/not applicable.

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122 No Impact 7% Minimally 14% Somewhat 52% Considerably 24% Uncertain 3% Figure 3-27. Policy makers per ception of the contribution of CARICOM arrangements to countries economic gain

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123 0 5 10 15 20Ca p ital E x. Ra t e Ex M a na g e m e n t In f lation Unskilled Labou r Skilled Labour Loc a l Inputs Fo r e i g n I np uts Technology M a rkets RulesCritical Business FactorsResponse Levels Positive Neutral Negative Uncertain/Not applicable Figure 3-28. Policy makers ou tlook on investment climate 0 5 10 15 20 25C a p i t a l E x R a t e E x M a n a g e m e n t In fl a t i o n U n s k i l l e d L a b o u r S k i l l e d L a b o u r L o c a l I n p u t s F o r e i g n In p u t s T e c h n o l o g yM a r k e t s R u l e sCritical Business FactorsResponse Levels Positive Neutral Negative Uncertain/Not applicable Figure 3-29. Policy makers perception of na tional policy impact on investment climate

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124 0 5 10 15 20 25C a p i t a l E x R a t e E x M a n a g e m e n t I n f l a t i o n L a b o u r I n p u t s T e c h n o l o g y M a r k e t s R u l e sCritical Business FactorsResponse Levels Positive Neutral Negative Uncertain/Not applicable Figure 3-30. Policy makers perception of CA RICOM policy impact on investment climate 0 5 10 15 20 25C E T R u l e s o f Or i g i n Ne g o t i a t i o n s M o v e me n t o f C a p i t a l M o v e me n t o f P e r s o n s R i g h t o f E s t a b l i s h m e n t Ag r i c u l t u r e F i s h er i e s I n d u s t r y S e r v i c e s ( T & H) S e r v i c e s ( P ) T r a n s p o r t a t i o nCARICOM PolicyAreasResponse Levels Positive Neutral Negative Uncertain/Not applicable] Figure 3-31. Policy makers perception of imp act of CARICOM policy areas on investment climate

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125 No Impact 4% Minimally 24% Somewhat 44% Considerably 24% Uncertain 4% Figure 3-32. Policy makers per ception of influence of CARICO M integration arrangements on in-country investment

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126 No impact 15% Minimally 39% Somewhat 23% Considerably 8% Uncertain 15% No impact Minimally Somewhat Considerably Uncertain Figure 3-33.Dominicas view of th e contribution of CARICOM arrangements to economic gain No impact 6% Minimally 29% Somewhat 41% Considerably 6% Uncertain 18% No impact Minimally Somewhat Considerably Uncertain Figure 3-34. Guyanas view of the contribution of CARICOM arra ngements to economic gain

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127 No impact 8% Minimally 42% Somewhat 23% Considerably 15% Uncertain 12% No impact Minimally Somewhat Considerably Uncertain Figure 3-35. Jamaicas view of the contribution of CARICOM arra ngements to economic gain No impact 0% Minimally 25% Somewhat 50% Considerably 8% Uncertain 17% No impact Minimally Somewhat Considerably Uncertain Figure 3-36. St. Lucias view of the contribution of CARICOM arrangements to economic gain

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128 No impact 5% Minimally 45% Somewhat 20% Considerably 30% Uncertain 0% No impact Minimally Somewhat Considerably Uncertain Figure 3-37. Trinidad & Tobago s view of the contribution of CARICOM arrangements to economic gain Micro No impact 0% Minimally 46% Somewhat 26% Considerably 19% Uncertain 9% No impact Minimally Somewhat Considerably Uncertain Figure 3-38. Micro firms view of the cont ribution of CARICOM arrangements to economic gains

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129 Small No impact 15% Minimally 23% Somewhat 39% Considerably 0% Uncertain 23% No impact Minimally Somewhat Considerably Uncertain Figure 3-39. Small firms view of the cont ribution of CARICOM arrangements to economic gains Medium No impact 8% Minimally 51% Somewhat 25% Considerably 8% Uncertain 8% No impact Minimally Somewhat Considerably Uncertain Figure 3-40. Medium firms view of the contribution of CARI COM arrangements to economic gains

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130 Large No impact 15% Minimally 20% Somewhat 40% Considerably 20% Uncertain 5% No impact Minimally Somewhat Considerably Uncertain Figure 3-41. Large firms view of the cont ribution of CARICOM arrangements to economic gains Agriculture No impact 0% Minimally 57% Somewhat 29% Considerably 0% Uncertain 14% No impact Minimally Somewhat Considerably Uncertain Figure 3-42. Agricultural firms view of th e contribution of CARICOM arrangements to economic gains

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131 Manufacturing No impact 10% Minimally 14% Somewhat 33% Considerably 24% Uncertain 19% No impact Minimally Somewhat Considerably Uncertain Figure 3-43. Manufacturing firms view of th e contribution of CARICOM arrangements to economic gains Services (T&H) No impact 6% Minimally 50% Somewhat 19% Considerably 6% Uncertain 19% No impact Minimally Somewhat Considerably Uncertain Figure 3-44. Service (Tourism & Hospitality) firms view of the contribution of CARICOM arrangements to economic gains

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132 Services (P) No impact 8% Minimally 62% Somewhat 15% Considerably 15% Uncertain 0% No impact Minimally Somewhat Considerably Uncertain Figure 3-45. Service (Professiona l & Other) firms view of the contribution of CARICOM arrangements to economic gains ] Trade & Commerce No impact 25% Minimally 25% Somewhat 25% Considerably 25% Uncertain 0% No impact Minimally Somewhat Considerably Uncertain Figure 3-46. Trade and Commerce firms view of the contribu tion of CARICOM arrangements to economic gains

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133 Agriculture / Manufacturing No impact 7% Minimally 27% Somewhat 36% Considerably 16% Uncertain 14% No impact Minimally Somewhat Considerably Uncertain Figure 3-47. Agriculture and manu facturing firms view of the contribution of arrangements to economic gains Services ( All) No impact 9% Minimally 49% Somewhat 20% Considerably 11% Uncertain 11% No impact Minimally Somewhat Considerably Uncertain Figure 3-48. Service (All) firm s view of the contribution of CARICOM arrangements to economic gains

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134 Manufacturing / Trade& Commerce No impact 10% Minimally 22% Somewhat 36% Considerably 20% Uncertain 12% No impact Minimally Somewhat Considerably Uncertain Figure 3-49. Manufacturing, trade and commerce fi rms view of the contribution of CARICOM arrangements to economic gains 0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 1234567 Capital impact categoriesProbabilitie s Core National policy CARICOM policy Figure 3-50. Probability distribution function for cost of cap ital probability response projection for the least influential variable impact in the current business environment. Capital impact category 1= least important; Capital impact category 7= most important

PAGE 135

135 0 0.1 0.2 0.3 0.4 0.5 0.6 1234567 Capital impact categoriesProbabilitie s Core National policy CARICOM policy Figure 3-51. Probability distribution function for cost of cap ital probability response projection for the most influential variable impact in the current business environment Capital impact category 1= least important; Capital impact category 7= most important. 0 0.05 0.1 0.15 0.2 0.25 0.3 1234567 Technology impact categoriesProbabilitie s Core National policy CARICOM policy Figure 3-52. Probability distribution function for availability of technology probability response projection for the least influential policy perception in the current business environment. Technology impact category 1= least important; Technology impact category 7= most important.

PAGE 136

136 0 0.05 0.1 0.15 0.2 0.25 0.3 1234567 Technology impact categoriesProbabilitie s Core National policy CARICOM policy Figure 3-53. Probability distribution function for availability of technology probability response projection for the most influential variable impact in the current business environment. Technology impact category 1= least important; Technology impact category 7= most important. 0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 123 Capital impact categoriesProbabilitie s Core National policy CARICOM policy Figure 3-54. Probability distribution function for cost of cap ital probability response projection for the least influential variable impact in the investment environment. Capital impact category 1= least important; Capital im pact category 3 = most important.

PAGE 137

137 0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 123 Capital impact categoriesProbabilitie s Core National policy CARICOM policy Figure 3-55. Probability distribution function for cost of cap ital probability response projection for the most influential variable impact in the investment environment. Capital impact category 1= least important; Capital im pact category 3 = most important. 0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 123 Markets impact categoriesProbabilitie s Core National policy CARICOM policy Figure 3-56. Probability dist ribution function for access to markets probability response projection for the least influential variable impact in the investment environment. Markets impact category 1= least importa nt; Markets impact category 3 = most important.

PAGE 138

138 0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1 123 Markets impact categoriesProbabilitie s Core National policy CARICOM policy Figure 3-57. Probability dist ribution function for access to markets probability response projection for the most influe ntial variable impact in the investment environment. Markets impact category 1= least importa nt; Markets impact category 3 = most important. Table 3-1 Distribution of entrepreneurs interviewed by country and firm type Number of firms by country Firm types Dominica Guyana Jamaica St. Lucia Trinidad and Tobago Total Agricultural chemicals 0 0002 2 Agricultural marketing 0 0011 2 Agro processing 2 2112 8 Distributor 0 0120 3 Livestock and poultry 0 1111 4 Manufacturer 0 6011 8 Servicesprofessional 1 2221 8 Seafood processing and marketing 0 2120 5 Services-tourism and hospitality 2 4000 7 Total 5 176109 47

PAGE 139

139 Table 3-2 Distribution of policy makers in terviewed by country and ministry type Number of policy makers by country Ministry type Dominica Guyana Jamaica St Lucia Trinidad and Tobago Total Agriculture and fisheries 1 13218 Commerce, investment and consumer affairs 0 01102 Finance 1 11003 Planning and development 1 00012 Trade 0 00022 Tourism 0 00101 Total 3 254418

PAGE 140

140Table 3-3 Profile of country respons es indicating impact of CARICOM po licies on critical bus iness factors. Countries Cost of capital Exchange rate Exchange rate management InflationUnskilled labor Skilled labor Local inputs Foreign inputs TechnologyAccess to markets Rules Dominica 0 0-++--+Guyana + 0 000-0 ++++ Jamaica 0 0/-00--++0/St Lucia 0 0------Trinidad and Tobago 0 0 00/-++0 00+0 Legend: + = positive impact, 0 = neutral, = negative impact, 0/= equal response levels, as indicated Table 3-4 Profile of country responses indicating impact of CARICOM areas. Trade negotiations Countries CET Rules of origin WTOEU Other Agric. Fisheries Industry Services (T&H) Services (P) Transp. Dominica + + ++++0+ ++Guyana + + 000U/NA00 U/NA+/ U/NA0 Jamaica + + -++000 00/+0 St Lucia -/+ 0 ---00-0/-0 Trinidad and Tobago -/+ 0 ---00-0/-0 Legend: + = positive impact, 0 = neutral, = negative impact, U/ NA = uncertain / not applicable, -/+ = equal response levels, as indicated

PAGE 141

141Table 3-5 Profile of firms respon ses indicating impact of CARICOM policies on critical business factors. Firms Cost of capital Exchange rate Exchange rate management Inflation Unskilled labor Skilled labor Local inputs Foreign inputs TechnologyAccess to markets Rules Micro 0 0/--------/+Small 0 000/+-/+--+++ Medium + 0/0000/-0+++0 Large 0 0 000+0/+++ Legend: + = positive impact, 0 = neutral, = negative im pact, -/+ = equal response levels, as indicated Table 3-6 Profile of firms responses indicating impact of CARICOM policy areas. Trade negotiations Countries CET Rules of origin WTOEU Other Agric. Fisheries Industry Services (T&H) Services (P) Transp. Micro + 0 -0/-0000 ++0/Small + + 0/+++00+ 0/U/NA0+ Medium + + 0/+00+/ U/NA U/NA+ U/NA0/+/ U/NA 0 Large + + -/++0000 00/+0 Legend: + = positive impact, 0 = neutral, = negative impact, U/ NA = uncertain / not applicable, -/+ = equal response levels, as indicated

PAGE 142

142Table 3-7 Profile of firms responses by sub-sector indicating impact of CARI COM policies on critical business factors Firms Sub-sectors Cost of capital Exchange rate Exchange rate management InflationUnskilled labor Skilled labor Local inputs Foreign inputs TechnologyAccess to markets Rules Agriculture 0-0U/NA-/+ -+-+Manufacturing -/0 -/0-/0-++ ---+Services (T&H) 00-0--++Services (P) 0 0000+ ++0++ Trade and commerce 0/+ --/+0/-0-/0 0+0+0 Agriculture and manufacturing 0000---/0+Services (All) 0 0000+-0++ Manufacturing, trade and commerce 0 0000--0+-/+ Legend: + = positive impact, 0 = neutral, = negative impact, U/ NA = uncertain / not applicable, -/+ = equal response levels, as indicated

PAGE 143

143Table 3-8 Profile of firms re sponses by sub-sector indicating impact of CARICOM policy areas Trade negotiations Countries CET Rules of origin WTOEU Other Agric. Fisheries Industry Services (T&H) Services (P) Transp. Agric. 0/U/ NA -/0/U/ NA 000/+-/+0/U/NA0 U/NA+/U/NAManuf. + + -/+0/++00+ 00/+0 Services (T&H) 0/+ 0 ---0/U/N A -/U/NA--Services (P) + 0 0+0000 0+0 Trade & commerce + 0/+ ++/U/ NA 0/+000 00/U/NA0 Agric. & manuf. + + -0+000 000 Services (All) + 0 -+000+ 0+0 Manuf., trade & commerce + + --/0+000 000 Legend: + = positive impact, 0 = neutral, = negative impact, U/ NA = uncertain / not applicable, -/+ = equal response levels, as indicated

PAGE 144

144Table 3-9 Profile of firm responses by c ountry indicating perceived impa ct of CARICOM policies on cr itical factors pertaining t o investment decisions Countries Cost of capital Exchange rate Exchange rate management InflationUnskilled labor Skilled labor Local inputs Foreign inputs TechnologyAccess to markets Rules Dominica + + +++++ ++++ Guyana + + +/-0--+ ++++ Jamaica + 0 +/0+0+0 0+++/0 St Lucia +/0/+/0 00+++/0 ++++ Trinidad and Tobago 0 0 00-+0 0++0 Legend: + = positive impact, 0 = neutral, = negative impact, U/ NA = uncertain / not applicable, -/+ = equal response levels, as indicated Table 3-10 Profile of firm responses by c ountry indicating perception of CARICOM policy areas influe nce on investment decisions Countries CET Rules of origin Trade negotiations Movement of capital Movement of persons Rights of Establish ment Agricul ture FisheriesIndustryServices (T&H) Services (P) Transport ation Dominica + + + ++++ +/-++++ Guyana 0 0 + +-+0 0++++ Jamaica + + + ++++ 0++++ St Lucia + + +/0 ++++ 000++ Trinidad and Tobago + + + ++++ 0++++ Legend: + = positive impact, 0 = neutral, = negative impact, U/ NA = uncertain / not applicable, -/+ = equal response levels, as indicated

PAGE 145

145Table 3-11 Profile of firm responses by firm size indicating perceived impact of CARI COM policies on critical factors pertainin g to investment decisions Firm size Cost of capital Exchange rate Exchange rate management InflationUnskilled labor Skilled labor Local inputs Foreign inputs TechnologyAccess to markets Rules Micro + + +00++ ++++ Small +/0 0 +/0/U+/U++/-+/0 +/0+++ Medium + + ++-+-+++ Large 0 0 000+0 00+0 Legend: + = positive impact, 0 = neutral, = negative impact, U/ NA = uncertain / not applicable, -/+ = equal response levels, as indicated Table 3-12 Profile of firm responses by firm size indicating perception of CARICOM policy areas influe nce on investment decisio ns Firm size CET Rules of origin Trade negotiations Movement of capital Movement of persons Rights of Establish ment Agricul ture FisheriesIndustryServices (T&H) Services (P) Transport ation Micro + + + ++++ 0++++ Small + + + ++++ 0+0++ Medium + + + ++++ +++++ Large + + + +++0 0++++ Legend: + = positive impact, 0 = neutral, = negative impact, U/ NA = uncertain / not applicable, -/+ = equal response levels, as indicated

PAGE 146

146Table 3-13 Profile of firm responses by s ub-sector indicating perceived impact of CARICOM policies on critical factors pertaini ng to investment decisions Sub-sector Cost of capital Exchange rate Exchange rate management InflationUnskilled labor Skilled labor Local inputs Foreign inputs TechnologyAccess to markets Rules Agriculture + 0 00++ +++++ Manufacturing 0 0 00++ +++/0+0 Services (T&H) + + ++-+++++ Services (P) + + ++++ +++++ Trade and Commerce + + +0-+ 0+/0+++ Agriculture & Manufacturing +/0 0 00++ ++/0+++ Services (All) + + ++/00+ +++++ Manufacturing & Trade and Commerce 0 + +0++ +/0+/0+++ Legend: + = positive impact, 0 = neutral, = negative impact, U/ NA = uncertain / not applicable, -/+ = equal response levels, as indicated

PAGE 147

147Table 3-14 Profile of firm responses by s ub-sector indicating percepti on of CARICOM policy areas in fluence on investment decisi ons Sub-sector CET Rules of origin Trade negotiations Movement of capital Movement of persons Rights of Establish ment Agricul ture FisheriesIndustryServices (T&H) Services (P) Transport ation Agriculture + + +++++ 0++++ Manufacturing + + +++++ 0++++ Services (T&H) + + +++++ +++++ Services (P) + + +++++ 0++++ Trade and Commerce + + +++++ +++++ Agriculture & Manufacturing + + +++++ 0++++ Services (All) + + +++++ 0++++ Manufacturing & Trade and Commerce + + +++++ +++++ Legend: + = positive impact, 0 = neutral, = negative impact, U/ NA = uncertain / not applicable, -/+ = equal response levels, as indicated

PAGE 148

148 Table 3-15 Univariate statistics fo r the cost of capital variable Parameter Mean Standard deviation Minimum Maximum Dominicadummy 0.175680.383140.00000 1.00000 Guyanadummy 0.135140.344200.00000 1.00000 Jamaicadummy 0.324320.471320.00000 1.00000 St Luciadummy 0.135140.344200.00000 1.00000 Trinidad & Tobagodummy 0.229730.423530.00000 1.00000 RECAPr 2.608111.849231.00000 7.00000 Firmsagri.&manuf. 0.500000.503410.00000 1.00000 Service (T&H) 0.229730.423530.00000 1.00000 Service (P) 0.297300.460190.00000 1.00000 Micro 0.500000.503410.00000 1.00000 Small 0.135140.344200.00000 1.00000 Medium 0.135140.344200.00000 1.00000 Large 0.229730.423530.00000 1.00000 NCAPs 2.527031.924771.00000 7.00000 CCAPt 3.513511.615361.00000 7.00000 N=74 r Variable for core ranking s Variable for national policy ranking t Variable for CARICOM policy ranking

PAGE 149

149 Table 3-16 Ordered probit regressi on results for policy influen ces on the business environment of selected CARICOM c ountries for the variable cost of capital Dependent variable: Core ranking of importance of cost of capital Parameter Estimate t-statistic Cintercept-Dominica & large firms .596817 (.705251) .846249 Firmsagri.&manuf. -.295191 (.296789) -.994613 Service (T&H) -.681041 (395286) -1.72291* Service (P) .217115 (.348411) .623156 Guyanadummy .217115 (.527332) .520273 Jamaicadummy -.408762 (.465246) -.878595 St Luciadummy -.223651 (.484597) -.461519 Trinidad & Tobagodummy -.216052 (.457826) -.471909 Micro -.708196 (.386005) -1.83468 Small .179104 (.489512) .365883 Medium -.279393 (.471834) -.592143 NCAP .544069 (.111066) 4.89859*** CCAP -.174482 (.114419) -1.52494 3 .703040 (.169925) 4.13734*** 4 1.71047 (.265101) 6.45217*** 5 2.19527 (.303112) 7.24242*** 6 2.37244 (.316612) 7.49321*** 7 2.57258 (.332685) 7.73280*** N=75 Scaled R squared= .524386 ***, **,* Denotes significance level at .01, .05 and .10 respectively Standard errors in parenthesis

PAGE 150

150 Table 3-17 Univariate statistics for the exchange rate variable Parameter Mean Standard deviation Minimum Maximum Dominicadummy 0.084750.280890.000001.00000 Guyanadummy 0.152540.362630.000001.00000 Jamaicadummy 0.305080.464400.000001.00000 St Luciadummy 0.13559 0.345290.000001.00000 Trinidad & Tobagodummy 0.322030.471270.000001.00000 REEXRT 3.423731.922671.000007.00000 Firmsagri.&manuf. 0.491530.504220.000001.00000 Service (T&H) 0.237290.429070.000001.00000 Service (P) 0.288140.456780.000001.00000 Micro 0.440680.500730.000001.00000 Small 0.135590.345290.000001.00000 Medium 0.135590.345290.000001.00000 Large 0.288140.456780.000001.00000 NEXRT 3.423731.886461.000007.00000 CEXRT 3.661021.372261.000007.00000 N=59

PAGE 151

151 Table 3-18 Ordered probit regressi on results for policy influen ces on the business environment of selected CARICOM countri es for the variable avai lability of technology Dependent variable: Core ranking of importance of exchange rate Parameter Estimate t-statistic Cintercept-Dominica & large firms -.746558 (.725754) -1.02867) Firmsagri.&manuf. -.070142 (.352279) -.199110 Service (T&H) .547801 (.392013) 1.39740 Service (P) .506781 (.384705) 1.31732 Guyanadummy -.080390 (.540775) -.148657 Jamaicadummy .185136 (.500900) .369606 St Luciadummy -.753882 (.555641) -1.35678 Trinidad & Tobagodummy -.231357 (.485555) -.476479 Micro .539543 (.364551) 1.48002) Small .762221 (.493740) 1.54377 Medium .102644 (.508133) .202002 NEXRT .563498 (.105339) 5.34937*** CEXRT -.059609 (.125680) -.474295 3 .858810 (.221234) 3.88191*** 4 1.75312 (.278494) 6.29498*** 5 2.41966 (.317858) 7.61240*** 6 2.57526 (.327338) 7.86728*** 7 3.04978 (.363676) 8.38597*** N=62 Scaled R squared= .498633 ***, **,* Denotes significance level at .01, .05 and .10 respectively Standard errors in parenthesis

PAGE 152

152 Table 3-19 Univariate statistics for the availa bility of technology vari able: current business environment Parameter Mean Standard deviation Minimum Maximum Dominicadummy 0.166670.375090.000001.00000 Guyanadummy 0.153850.363140.000001.00000 Jamaicadummy 0.294870.458940.000001.00000 St Luciadummy 0.141030.350300.000001.00000 Trinidad & Tobagodummy 0.243590.432030.000001.00000 RETEC 4.115382.012821.000007.00000 Firmsagri.&manuf. 0.500000.503240.000001.00000 Service (T&H) 0.243590.432030.000001.00000 Service (P) 0.282050.452910.000001.00000 Micro 0.512820.503070.000001.00000 Small 0.115380.321550.000001.00000 Medium 0.153850.363140.000001.00000 Large 0.217950.415520.000001.00000 NTEC 3.717951.899401.000007.00000 CTEC 4.089741.796001.000007.00000 N= 78

PAGE 153

153 Table 3-20 Ordered probit regressi on results for policy influen ces on the business environment of selected CARICOM countri es for the variable avai lability of technology Dependent variable: Core ranking of im portance of availability of technology Parameter Estimate t-statistic Cintercept-Dominica & large firms -1.42361 (.684461) -2.07989** Firmsagri.&manuf. .353236 (.289969) 1.21818 Service (T&H) -.267493 (.324045) -.825479 Service (P) .267222 (.326487) .818479 Guyanadummy .931110 (.485652) 1.91724* Jamaicadummy .391376 (.431663) .906671 St Luciadummy .819300 (.496024) 1.65174* Trinidad & Tobagodummy .973246 (.444860) 2.18776** Micro -.083061 (.339953) -.244330 Small .088108 (.463426) .190124 Medium -.178706 (.427427) -.418097 NTEC .418988 (.099729) 4.20159*** CTEC .242890 (.114187) 2.12711** 3 1.00608 (.262023) 3.83967*** 4 1.46343 (.285950) 5.11779*** 5 2.17187 (.311869) 6.96406*** 6 2.4170 (.320080) 7.53466*** 7 3.48621 (.374566) 9.30733*** N=78 Scaled R squared=.569757 ***, **,* Denotes significance level at .01, .05 and .10 respectively Standard errors in parenthesis

PAGE 154

154 Table 3-21 Univariate statistics for the access to markets variable: current business environment Parameter Mean Standard deviation Minimum Maximum Dominicadummy 0.0862070.283120.000001.00000 Guyanadummy 0.155170.365230.000001.00000 Jamaicadummy 0.310340.466680.000001.00000 St Luciadummy 0.155170.365230.000001.00000 Trinidad & Tobagodummy 0.293100.459160.000001.00000 REMKT 3.931032.024951.000007.00000 Firmsagri.&manuf. 0.534480.503170.000001.00000 Service (T&H) 0.224140.420660.000001.00000 Service (P) 0.258620.441700.000001.00000 Micro 0.431030.499550.000001.00000 Small 0.137930.347840.000001.00000 Medium 0.137930.347840.000001.00000 Large 0.293100.459160.000001.00000 NMKT 3.982761.849531.000007.00000 CMKT 4.620691.989691.000007.00000 N=58

PAGE 155

155 Table 3-22 Ordered probit regressi on results for policy influen ces on the business environment of selected CARICOM c ountries for the variable access to markets Dependent variable: Core ranking of importance of access to markets Parameter Estimate t-statistic Cintercept-Dominica & large firms .240375 (.692345) .347189 Firmsagri.&manuf. -.242927 (.353529) -.687148 Service (T&H) -.316875 (.387242) -.818286 Service (P) -.202524 (.384891) -.526185 Guyanadummy .207232 (.547138) .378757 Jamaicadummy -.303915 (.530881) -.572474 St Luciadummy -.018211 (.580341) -.031379 Trinidad & Tobagodummy .085329 (.505150) .168918 Micro -.353037 (.364672) -.968096 Small .102944 (.478983) .214922 Medium -.565589 (.486231) -1.16321 NMKT .371784 (.119276) 3.11701** CMKT .00273 (.117931) .023163 3 .447132 (.157719) 2.83143** 4 .897005 (.204245) 4.39181*** 5 1.46502 (.244510) 5.99167*** 6 1.97354 (.270837) 7.28682*** 7 2.45110 (.298674) 8.20660*** N=61 Scaled R squared=.345316 ***, **,* Denotes significance level at .01, .05 and .10 respectively Standard errors in parenthesis

PAGE 156

156 Table 3-23 Univariate statistics for the cost of capital variable: i nvestment environment Parameter Mean Standard deviation Minimum Maximum Dominicadummy 0.206350.407930.000001.00000 Guyanadummy 0.222220.419080.000001.00000 Jamaicadummy 0.238100.429340.000001.00000 St Luciadummy 0.0793650.272480.000001.00000 Trinidad & Tobagodummy 0.253970.438780.000001.00000 RECAPIV 2.063490.965081.000003.00000 Firmsagri.&manuf. 0.492060.503950.000001.00000 Service (T&H) 0.238100.429340.000001.00000 Service (P) 0.333330.475190.000001.00000 Micro 0.428570.498850.000001.00000 Small 0.126980.335630.000001.00000 Medium 0.158730.368360.000001.00000 Large 0.269840.447440.000001.00000 NCAPIV 1.984130.941721.000003.00000 CCAPIV 2.253970.782231.000003.00000 N= 63

PAGE 157

157 Table 3-24 Ordered probit regressi on results for policy influences on the investment environment of selected CARICOM c ountries for the variable cost of capital Dependent variable: Core ranking of importa nce of cost of capital for investment Parameter Estimate t-statistic Cintercept-Dominica & large firms -2.45786 (.992654) -2.47605** Firmsagri.&manuf. -.425661 (.481306) -.884387 Service (T&H) .084279 (.476847) .176741 Service (P) -.521961 (492978) -1.05879 Guyanadummy -.232178 (.649765) -.367459 Jamaicadummy -.232178 (.617374) -.376073 St Luciadummy -.549882 (.869430) -.632463 Trinidad & Tobagodummy .674535 (.628061) 1.07399 Micro .481764 (.486615) .989994 Small -.279921 (.691770) -.404645 Medium .922369 (.629647) 1.46484 NCAPIV .945770 (.245604) 3.85079*** CCAPIV .379612 (.282135) 1.34550 3 .314486 (.133326) 2.35878 N= 63 Scaled R squared= .469070 ***, **,* Denotes significance level at .01, .05 and .10 respectively Standard errors in parenthesis

PAGE 158

158 Table 3-25 Univariate statistics for the exch ange rate variable: investment environment Parameter Mean Standard deviation Minimum Maximum Dominicadummy 0.157890.367880.000001.00000 Guyanadummy 0.228070.423320.000001.00000 Jamaicadummy 0.263160.444260.000001.00000 St Luciadummy 0.0701750.257710.000001.00000 Trinidad & Tobagodummy 0.280700.453340.000001.00000 REEXRTIV 1.947370.874661.000003.00000 Firmsagri.&manuf. 0.508770.504370.000001.00000 Service (T&H) 0.245610.434280.000001.00000 Service (P) 0.280700.453340.000001.00000 Micro 0.403510.494960.000001.00000 Small 0.122810.331310.000001.00000 Medium 0.192980.398150.000001.00000 Large 0.263160.444260.000001.00000 NEXRTIV 2.087720.911841.000003.00000 CEXRTIV 2.298250.755101.000003.00000 N= 57

PAGE 159

159 Table 3-26 Ordered probit regressi on results for policy influences on the investment environment of selected CARICOM c ountries for the variable exchange rate Dependent variable: Core ranking of importa nce of exchange rate for investment Parameter Estimate t-statistic Cintercept-Dominica & large firms -3.45571 (1.41601) -2.44045** Firmsagri.&manuf. .152070 (.461524) .329494 Service (T&H) -.433295 (.479562) -.903522 Service (P) -.00391 (.493698) -.792163E-02 Guyanadummy .920816 (.815132) 1.12965 Jamaicadummy .00776 (.665783) .011654 St Luciadummy -.947309 (.926042) -1.02296 Trinidad & Tobagodummy .561588 (.777791) .722029 Micro .343681 (.505591) .679761 Small -.133414 (.667645) -.199828 Medium -.568527 (.683618) -.831644 NEXRTIV 1.30440 (.276179) 4.72303*** CEXRTIV .327491 (.297083) 1.10235 3 1.02462 (.240948) 4.25246*** N= 57 Scaled R squared= .563480 ***, **,* Denotes significance level at .01, .05 and .10 respectively Standard errors in parenthesis

PAGE 160

160 Table 3-27 Univariate statistics for the access to markets variable: investment environment Parameter Mean Standard deviation Minimum Maximum Dominicadummy 0.209680.410400.000001.00000 Guyanadummy 0.177420.385140.000001.00000 Jamaicadummy 0.274190.449750.000001.00000 St Luciadummy 0.0806450.274510.000001.00000 Trinidad & Tobagodummy 0.258060.441140.000001.00000 REMKTIV 2.516130.804541.000003.00000 Firmsagri.&manuf. 0.532260.503030.000001.00000 Service (T&H) 0.225810.421530.000001.00000 Service (P) 0.306450.464780.000001.00000 Micro 0.387100.491060.000001.00000 Small 0.161290.370800.000001.00000 Medium 0.177420.385140.000001.00000 Large 0.258060.441140.000001.00000 NMKTIV 2.274190.890191.000003.00000 CMKTIV 2.629030.683141.000003.00000 N=62

PAGE 161

161 Table 3-28 Ordered probit regressi on results for policy influences on the investment environment of selected CARICOM countries for the variable access to markets Dependent variable: Core ranking of importa nce of access to markets for investment Parameter Estimate t-statistic Cintercept-Dominica & large firms -.961442 (1.03648) -.927599 Firmsagri.&manuf. -.218608 (.540081) -.404769 Service (T&H) .446935 (.581773) .768228 Service (P) -.192042 (.533415) -.360023 Guyanadummy -.573974 (.725186) -.791485 Jamaicadummy -.111917 (.678341) -.164986 St Luciadummy -.153879 (1.07853) -.142675 Trinidad & Tobagodummy -.493711 (.616450) -.800894 Micro .275050 (.543675) .505910 Small -.264978 (.663677) -.399257 Medium .176355 (.690441) .255424 NMKTIV .993092 (.260930) 3.80597*** CMKTIV .084768 (.286012) .296380 3 .477788 (.181649) 2.63027*** N=62 Scaled R squared=.399896 ***, **,* Denotes significance level at .01, .05 and .10 respectively Standard errors in parenthesis

PAGE 162

162 Table 3-29 Univariate statistics for the avai lability of technology variable: investment environment Parameter Mean Standard deviation Minimum Maximum Dominicadummy 0.196970.400760.000001.00000 Guyanadummy 0.227270.422280.000001.00000 Jamaicadummy 0.257580.440650.000001.00000 St Luciadummy 0.0909090.289680.000001.00000 Trinidad & Tobagodummy 0.227270.422280.000001.00000 RETECIV 2.439390.786991.000003.00000 Firmsagri.&manuf. 0.500000.503830.000001.00000 Service (T&H) 0.212120.411940.000001.00000 Service (P) 0.318180.469340.000001.00000 Micro 0.409090.495430.000001.00000 Small 0.136360.345800.000001.00000 Medium 0.196970.400760.000001.00000 Large 0.242420.431830.000001.00000 NTECIV 2.272730.851161.000003.00000 CTECIV 2.500000.685001.000003.00000 N= 66

PAGE 163

163 Table 3-30 Ordered probit regressi on results for policy influences on the investment environment of selected CARICOM count ries for the variable av ailability of technology Dependent variable: Core ranking of importance of availability of technology for investment Parameter Estimate t-statistic Cintercept-Dominica & large firms -1.36988 (.940456) -1.45661 Firmsagri.&manuf. -.127573 (.481991) -.264680 Service (T&H) .445480 (.523254) .851365 Service (P) .488829 (.458370) 1.06645 Guyanadummy -.039032 (.620189) -.062936 Jamaicadummy -.144522 (.571883) -.252712 St Luciadummy -.231836 (.755449) -.306885 Trinidad & Tobagodummy -.273616 (.581944) -.470176 Micro .038361 (.459025) .083570 Small -.656064 (.559865) -1.17183 Medium .681150 (.611056) 1.11471 NTECIV .706584 (.248463) 2.84382*** CTECIV .380511 (.291992) 1.30315 3 .831682 (.205497) 4.04718*** N= 66 Scaled R squared =.388566 ***, **,* Denotes significance level at .01, .05 and .10 respectively Standard errors in parenthesis

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164 CHAPTER 4 GRAVITY ANALYSIS OF INTER-COUNTRY TRADE Introduction Trade has been dominated by three sets of trading partners an d arrangements for CARICOM countries, namely: intraCaribbean trade, European Uni on (EU) trade and trade with the United States (US). This occu rs despite trading agreements w ith other countries within and outside the Caribbean (Gasiorek and Winters, 2004). In their analysis of the patterns of trade in the Caribbean, Gasiorek and Wi nters (2004) demonstrate that for these three major trading partners of CARICOM countries, the EU is the more important fo r exports while the US is the more important for imports, particular ly for the smaller CARICOM countries. Preferential trade between the EU and CARICOM countries orig inated in the colonial era and was supported through successive rounds of the Lom Convention beginning in 1975 followed by the Cotonou Agreement of 2000 (Gas iorek and Winters, 2004) CARICOM / US trading arrangements have been conducted under the umbrella of the Caribbean Basin Initiative (CBI), a collective of three legislative measures designed to promote trade in diverse manufactured products between Caribbean countri es and the US and investment from the US into those countries (D ypski, 2002,). The CBI is similar to the US Generalized System of Preferences in allowing duty-free entry of products into the US market. However, the CBI is more facilitative for trade offering, inter alia, wider product coverage, technical assistance for trade facilitation and investment fina ncing (Gasiorek and Winters, 2004). As observed earlier, the achievement of ec onomic integration in CARICOM has been challenging. Lewis and Webster (2001) and Gasior ek and Winters (2004) refer to the existence of a common external tariff in principle and many national exemptions togeth er with variation in tariff rates across countries in practice. Lewis an d Webster (2001) observe that in some instances

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165 domestic producers are afforded greater prot ection against partners than extra-CARICOM imports. Firm respondents to a r ecent survey indicated experiencing non-tariff barriers to trade (Gordon and VanSickle, 2007). Ga siorek and Winters (2004, p1346) provide a summarized description of the countries as: a group of small island economies, most of which are specialized in services ( tourism and banking) and for whom neither agriculture no r manufacturing are the principal sectors of economic activity. Therefore the inter-countr y trade analysis is being undertak en in a context where there are key external trading partners and impediments to the established internal trading arrangements. Results Equation 2-4 was estimated with TSP versi on 5.0 as a panel fo r the 25 annual cross sections of data on inter-country trade between pairs of the target countrie s, over the years 19812005. Because the actual implementation of the CET commenced in 1993, a dummy was used in the model to ascertain whether there was any di fference in the trade effects over the periods 1981-1992 and 1993 to 2005. The panel is unbalanced because of missing data and the number of observations was 423. The estimated coeffici ents for the panel regression are reported in Table 4-2, for both the fixed effects and the rand om effects estimation models that are used for accounting for unobserved heterogeneity in panel da ta (Adams et al., 2003; Greene, 2003; Hsiao, 2003; Kennedy, 1998). Following the approach of Adams et al. ( 2003), Hausmans statistic for evaluating between the fixed effects and random e ffects specifications is applied (Greene, 2003; Hsiao, 2003). The estimated Hausman test statistic, as reported in Table 4-2, was more than the critical value at the 5 percent level therefore th e random effects specification can be rejected. This same result of the Hausman test was obtaine d when applied to the models in equations 2-5

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166 and 2-6. Consequently, only the results of the fi xed effects model will be examined for the other models. Since each of equations 2-4, 2-5 and 2-6 is linear in logarith ms the estimated coefficients are the elasticities associated with the respec tive variables. From equation 2-4, the estimated parameter on exporter income21 suggests that an incr ease in this variable has a positive effect on bilateral trade, confirming a priori expectations. For two other variables in the model, the tariff ratio and the rest of the world im ports, the results indicate that in cremental increases in these also have a positive impact on the trade. Both paramete r estimates are statistically significant at the 5 percent level. The parameter estimates for the other variables in the model are not statistically significant. (See Table 4-2). When the model is expressed as equation 2-5 the only statistically significant parameter estimates are for the variables representing export er income, the tariff ratio and imports from the rest of the world (See Table 4-3). The positive signs on the later two variables indicate that incremental increases in these contribute to incr eased imports. The negative sign on the estimate for exporter income contradicts e xpectations as well as the results obtained from the model as equation 2-422. In all instances, the dummy reflecting the implementation of the CET does not show any significant difference between the two periods 1981-1992 and 1993-2005. Interpretation Population size can be viewed as an indicator of demand for the importer and of supply for the exporter. Large countries howev er, with a more diversified pr oduction base, can benefit from scale economies and likely trade less (Bra da and Mendez, 1983; Linnemann, 1966). These 21 Nominal values were used for income, imports and exports 22 Distance was found to have no measurable impact on trade and was dropped from the model. This may be a reflection of the weak intra-regional transportation system.

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167 circumstances lead to ambiguity in the signs of the population paramete rs (Brada and Mendez, 1983). The negative sign on the exporter populati on parameter for equation 2-6 is likely an indication that the demand for goods has shifted from the regional partner to an extra-regional partner rather than an indication of greater self-sufficiency, given the relative small size of the countries. The tariff variable refl ects the relative levels of th e common external tariff faced by third country goods being imported into the pref erential trading area. A reduction in the CET levels will increase trade from the rest of the world and consequently increase imports as indicated by the positive sign on th is parameter estimate that is st atistically significant at the 1 percent level. The parameter estimate for imports from the rest of the world was positive and statistically significant at the 1 percent level in all estimations of the model. This indicates a great influence of external trade on imports from a partner country. Increa sed external trade is likely associated with an improve ment of trade infrastructure th at benefits both external and inter-regional trade. The coefficient value for im ports from the rest of the world is less than unity, an indication that there is greater proportion of trade with th ird countries than with partner countries. The parameter estimate for the tariff ratio vari able was found to be statistically significant and positively signed for the period 1981 -2005 as well as for the period 1993-2005 indicating its importance in influencing intra-regional trade. In separate regressi ons over the period 1981-1992 there was no impact of this variable. Th is likely reflects the hiatus surrounding the implementation of the common external tariff from the inception of CARICOM in 1973 through to the end of 1992. It is unexpect ed that an incrementa l increase in imports fr om the rest of the world lead to an increase in intra-regional import s. One possible explanati on is that this is a

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168 reflection of a large proportion of the goods bein g routed through transsh ipment or gateway ports to final destinations as iden tified by Harding and Hoffmann (2002). Implications The results suggest that both trade creation and trade diversion have been experienced by the countries studied. Trade creation was likely influenced by imports fr om third countries, possibly through infrastructural improvements th at benefited intra-z onal trade also. The reduction in the CET levels seems to be a key in fluence on trade diversion, with the reduction in the tariff barriers to third c ountry trade. A similar analysis on intra-CARICOM trade at a disaggregated SITC level could he lp in understanding the degree of trade creation or diversion, as a result of the preferen tial trading arrangements.

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169 Table 4-1 Univariate statistics for variables pertaini ng to inter-country trad e between pairs of selected CARICOM countries Parameter Mean Standard deviation Minimum Maximum ln( Total importsi) 15.16331.468812.060119.4495 ln( total exportsj) 15.17621.662011.143619.4090 ln( GDPi) 20.53981.496818.008523.3876 ln(GDPj) 20.39491.368818.008523.3876 ln(Populationi) 12.56291.198911.171514.0819 ln (Populationj) 12.69311.158411.171514.7089 ln (Per capita incomei) 7.97690.64296.60759.3057 ln (Per capita incomej) 7.70170.83286.13759.3057 ln (Real exchange rate ratio i/j) -.16581.0127-13.67051.7345 ln (Official exchange rate ratio : i/j) -.33222.1587-4.29664.2966 ln (CET ratio: i/j) -0.021700.2011-0.35970.3597 ln ( Imports from rest of worldi) 19.85481.299317.523222.4682 ln (Exports to rest of worldi) 19.32281.769916.768822.8507 N= 235

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170 Table 4-2 Panel regression results for inter-coun try trade between pairs of selected CARICOM countries, 1981-2005: model 2-4 Dependent variable: ln (Imports of i from j) Independent variables Fixed eff ects (FE) Random effects (RE) ln (GDPi ) -.03117 (.17794) -.04021 (.16047) ln (GDPj) .31707*** (.11859) .48139*** (.10700) ln (Populationi) .68429 (.71022) -.21805 (.22330) ln (Populationj) -.21553 (.27127) .15580 (.17229) CET implementationdummy .03772 (.11070) -.02041 (.10300) ln ( CET ratio: i/j) 1.0296*** (.24220) 1.0887*** (.22695) ln (Real exchange ra te ratio: i/j) -.00824 (.03262) .00125 (.03221) ln ( Imports from rest of worldi) .67689*** (.15869) .70274*** (.15462) ln (Exports to rest of the worldi) -.02525 (.13055) -.07224 (.11616) Constant -5.6268 (3.5893) R-squared .90845.61755 Adjusted R-squared .89987.60297 F-stat : F (12,224) 48.646 Hausman test of H0: RE vs. FE CHISQ(9)=27.998CHISQ(9)=27.998 Durbin-Watson 1.3693.29524 N= 246 ***, **,* Denotes significance level at .01, .05 and .10 respectively Standard errors in parenthesis

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171 Table 4-3 Panel regression results for inter-coun try trade between pairs of selected CARICOM countries, 1981-2005: m odels 2-5 and 2-6 Dependent variable: ln (Imports of i from j) Independent variables Fixed effects (FE) Model 2-5 Fixed effects (FE) Model 2-6 ln (Per capita GDPi ) .22435 (.81866) .19448 (.19363) ln (Per capita GDPj) .29894 (.20534) -.24304** (.11430) ln (GDPi) -.02986 (.78039) ln (GDPj) -.54198** (.21728) ln (Populationi) -.02988 (.78039) ln (Populationj) -.54199** (.21728) CET implementationdummy .13332 (.12045) .13332 (.12045) ln (Official exchange rate ratio: i/j) .00753 (.04167) .00753 (.04167) ln ( CET ratio: i/j) .69208*** (.22532) .69208*** (.22532) ln ( Imports from rest of worldi) .69232*** (.19067) .69232*** (.19067) ln (Exports to rest of the worldi) -.15555 (.14325) -.15555 (.14325) R-squared .84223.84223 Adjusted R-squared .83102.83102 F-stat : F(19,394) =53.063F(19,394)=53.063 Hausman test of H0: RE vs. FE CHISQ(9)=33.531CHISQ(9)=33.531 Durbin-Watson .78959.78959 N=423 ***, **,* Denotes significance level at .01, .05 and .10 respectively Standard errors in parenthesis

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172 CHAPTER 5 INVESTMENT AND OUTPUT GROWTH ANALYSIS Introduction Recent growth in world trade has been infl uenced by more liberal foreign investment policies and open trade regimes. These circum stances are generally supportive of outwardoriented investment projects (DeRosa, 2000). Liberal foreign investme nt policies stimulate foreign direct investment (FDI). Interest in the determinants of FDI in developing countries occurs because it is consider ed a stable component of cap ital flows and a vehicle for technological progress through the use of improved production techni ques (Benassy-Quere et al., 2007). These authors refer to the li nk between FDI and institutions as one channel that promotes productivity growth. They cite good governance infrastructures, improved efficiency and strong enforcement of property rights as elements of good institutiona l systems that are positively correlated with FDI (Ben assy-Quere et al., 2007). These re searchers conclude that among the important determinants of inward FDI are bur eaucracy, corruption, the banking sector and legal institutions. Their results suggest that impr ovements in the institutional environment of developing countries will contribu te to increased levels of FD I (Benassy-Quere et al., 2007). Using the experience of Sout h Korea manufacturing as a model, (Kim and Kwon, 1977) analyzed the utilization of cap ital in that economy and its cont ribution to the manufacturing industry in South Korea. They concluded that improve d capital utilization is a major source of output growth. In this context the analysis of investment a nd output growth of the target countries is undertaken. Investment Data were collected for the period 1981-2005 fo r the five target countries, for the dynamic analysis. The data were analyzed as a panel us ing the investment mode l of equation 2-8. The

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173 output indicated that OLS provided the best SBIC model for the da ta. Using OLS, the investment model equation 2-8 was re-estimated with separate intercepts for each of the countries. The OLS parameters are reported in Tabl e 5-2. There is a good fit of th e model and the data with the estimates generally conforming to a priori expectations. The estimat e and sign of the capital inflow parameter is an indicati on that domestic capital formation is closely related to foreign direct investment. Output Growth The effect of increased levels of capital stoc k formation is evaluated by the model depicted in equation 2-10. On the assumption that capita l stock formation will contribute to technological progress through improved production t echniques it is argued that this model may also be used to indirectly assess technological pr ogress. Two sets of OLS parame ter estimates are reported in Tables 5-3 and 5-4 respectively. Table 5-3 contains the estimates of the model when data on the labor force were used. Because these data were unavailable for Dominica the model was again estimated using data on population th at were available for all five countries. Those estimates are reported in Table 5-4. In both cases the estimate associated with the growth in capital stock is positive and statistically significant. This is to be expected given the results of the investment analysis. In neither instance is the other e xplanatory variable stat istically significant. Implications The results indicate that growth in GDP was strongly influenced by gr owth in capital stock and possibly the related technological improvements influenced by the growth in capital stock. The capital stock growth was likel y a product of the growth in fore ign direct investment that was experienced by all the countries studied.

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174 Table 5-1 Univariate statistics for the variables in the analysis of investment and productivity Parameter Mean Standard deviation Minimum Maximum GDP (Y) 72110509.44601.5296D+08314965.2500 9.0303D+08 Gross capital formation (I) 16404622.582833206543.226868031.3125 1.8885D+08 I/Y 0.26190.065270.1307 0.5249 GDP growth (DY/Y) -8.217441.7841-486.9698 0.5249 Real foreign capital inflow(F) 1514526.58712749206.2489-4383778.00 11986409.00 TAR (average tariff difference between i and j) 0.0090543.3689-5.7000 5.7000 Table 5-2 OLS regression resu lts for investment model of selected CARICOM countries, 19812005 Dependent variable: [(Real gross capital formation)/ (Real GDP)] Variable Estimated coefficient t-statistic Intercept country 1 (Dominica) .24359 .00633 38.454*** Intercept country 2 (Guyana) .26907 .00596 45.138*** Intercept country 3 (Jamaica) .24569 .00538 45.706*** Intercept country 4 (St Lucia) .20154 .00689 29.321*** Intercept country 5 (Trinidad / Tobago) .18652 .00586 31.8240*** Y/Yi,t -.00007 .00006 -1.1211 FDI / Yi,t .49189 (.04383) 11.222*** N= 486

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175 Table 5-3 OLS regression resu lts for output growth model of selected CARICOM countries, 1981-2005: model 2-10 Dependent variable: [Growth of Real GDP in country i in year t] Variable Estimated coefficient t-statistic Intercept country 3 (Jamaica) -.05156 (1.1600) -.04445 Intercept country 4 (St Lucia) .27282 (1.3929) .19587 Intercept country 5 (Trinidad / Tobago) -.03913 (1.1903) -.03287 K/ Ki,t 1.3242 (.02596) 51.016*** L/ Li,t -.14757 (.18604) -.79325 N= 362 ***, **,* Denotes significance level at .01, .05 and .10 respectively Standard errors in parenthesis

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176 Table 5-4 OLS regression resu lts for output growth model of selected CARICOM countries, 1981-2005; model 2-10 ( with popul ation as proxy for labor) Dependent variable: [Growth of Real GDP in country i in year t] Variable Estimated coefficient t-statistic Intercept country 1 (Dominica) .43924 (1.2969) .33868 Intercept country 2 (Guyana) .02813 (1.1655) .02413 Intercept country 3 (Jamaica) -.05175 (1.1534) -.04487 Intercept country 4 (St Lucia) -.40141 (1.3039) -.30786 Intercept country 5 (Trinidad / Tobago) -.04117 (1.1835) -.03479 K/ Ki,t 1.2716 (.02163) 58.789*** P/ Pi,t -.08282 (.15367) -.53895 N= 476 ***, **,* Denotes significance level at .01, .05 and .10 respectively Standard errors in parenthesis

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177 CHAPTER 6 SUMMARY, IMPLICATIONS AND CONCLUSIONS Summary Interviews Information gathered from the interviews provides a number of insights. The prevailing view among both firms and policy makers is th at the Caribbean Community was a good concept but there was a stark difference between firm s and policy makers about whether CARICOM arrangements strengthened the bus iness environment. Among firms, strong differences were also displayed concerning the contri bution of CARICOM arrangements to increasing the volume of business, reducing the cost of doing business, increasing the target market and minimizing nontariff barriers to trade. Some interviewees also made reference to thei r experiencing non-tariff barriers to trade that negatively affected potentia l growth of their firms. These issues create doubt about the efficacy of the impact of CARI COM arrangements on the business environment. Firms commented about the narrow and ineffectual mechanisms available for input into the design of CARICOM policies. Policy makers ac knowledged their opportunity to input into the design of CARICOM policies but e xpressed reservation concerning inadequate consideration of national circumstances when de signing CARICOM policy. A rela ted issue is the apparent overlooking of structural di fferences such as differences in debt burden, availability and cost of capital and the level of skill in the labor for ce, resulting in the existence of considerable divergence among some elemen ts of the economies of the CARICOM members. These circumstances promoted the view that there may be need for a differential approach to the policy design and formulation process in order to more effectively accommodate the weaker states within the overall regional policy framework.

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178 Firms Surveys The entrepreneurial population of CARICOM is very divers e with respect to firm size, area (sub-sector) of operation and scope of operations. Micro firms with annual sales volume of less than US$ 1.0 million is the dominant group being twi ce as large as the next largest group of large firms that have an annual sales volume greater than US$ 6.5 million. The small firms group and the medium firms group are approximately equally sized. Manufacturing is the dominant area of operation but many firms are multi-faceted and operate in more than one sub-sector. Some operational combinations revealed are: agricult ure and manufacturing; ag riculture and services (professional); agriculture, manuf acturing and trade and commerce; services (professional) and trade and commerce. This multi-faceted feature was observed in firms of different sizes. Some of the firms have global experience, operating in countries outside of their home base and the Caribbean Community. Large firms lead in this regard but micro and small firms are also involved. For the collective of firms, there is an ove rwhelming negative percep tion of the critical business factors influencing the business operati ons of firms, except for availability of technology. This view is subs tantiated when the data are examined by country with the exception of unskilled labor, s killed labor and local inputs in Guyana and institutional structures or rules in St. Lucia. At the country level, all critical factors were perceived to be of negative influence by firms in Dominica. The co llective of firms also perceived an across-theboard negative impact of govern ment policy on the critical busi ness factors. There were a few exceptions to this profile when the data were disaggregated by country. These pertained to Dominica for exchange rate management, cost of unskilled labor, cost of skilled labor and access to markets; Guyana and Trinidad and To bago for access to markets; and St. Lucia for

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179 exchange rate, exchange rate management, availability of technol ogy and access to markets. The collective of firms indicated a positive impact of CARICOM policies on only one critical business factor, namely access to markets and in three areas an overall negative impact was demonstrated. Examination of the data disa ggregated by country, however, elicited a much more varied impact perception profile. A simila r varied perception profile was obtained when the data were disaggregated by firm size and sub-sector of operation. One striking feature revealed by this additional disaggregati on was that there was no overr iding negative perception indicated by medium firms, large firms or the service (professional) sub-groups. There was a positive perception of the im pact of three CARICOM policy areas, namely the CET, the Rules of Origin and Services (profe ssional) for the collective of firms. Mainly, this profile was mirrored by the sub-groups in the disa ggregated data except fo r St. Lucia, which did not perceive a positive impact for any CARICOM policy area. The perception of impact of the other CARICOM policy areas varied when the da ta are disaggregated by sub-groups. Across the sub-group categories, except for a few instances, th ere was either a no im pact or negative perception for some CARICOM policy areas such as agriculture, fisheries, industry, services (tourism and hospitality) and services (professional). A comparison of the relative importance of national versus CARICOM policy sources influencing the critical factor s indicates a perception of the national policies being generally ranked the more important policy influence, by th e more optimistic set of respondents. In only one instance, that of market access were the CARICOM policie s perceived to be of greater influence. The econometric analysis of the survey data for the four business variables cost of capital, exchange rate, availability of technol ogy and access to markets in dicated a statistically

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180 significant perception of the infl uence of national policy only on those variables, with one exception. For the availability of technology, the influence of CARICOM policy was also perceived statistically significant. A relatively conservative response was o ffered to the perception of the CARICOM arrangements contributing to countries ec onomic gain with the 37 percent indicating minimally, 30 percent indicati ng somewhat and only 15 percen t indicating considerably. A review of the data disaggregated by firms indicated that the most optimistic view (considerably) was shar ed primarily by large and micro firms. Disaggregation by country revealed that the optimistic view was shared by twice the proportion of Trinidad and Tobago respondents as by Jamaica respondents. Disa ggregation by sub-sect or indicates that manufacturing and trade and commerce lead in having an optimistic perception followed by service (professional). Respondents from agriculture are only weakly optimistic in this regard. Policy Makers Surveys The experience profile of the policy makers indi cates that over 60 percent of them have a minimum of five years experience. Economics is the top field among the areas of specialization, with the majority holding masters degrees and one holding a PhD degree. Management, agricultural economics and agriculture are among the top area s of specialization. Some policy makers are qualified in multiple areas of specialization. The perception of policy make rs is that both national pol icies and CARICOM policies have a general positive impact on the critical business factors. They also view the interface of CARICOM policy on national policy as well as the impact of specific CARICOM policy areas as positive. A comparison of national versus CARICOM policy sources with respect to the influence on the critical busine ss factors revealed, for the more optimistic policy makers, that there was a perception of greater national policy influence for all bu t the cost of skilled labor

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181 and access to markets. CARICOM policy was perc eived to have greater influence on these two factors. Policy makers are quite optim istic about the contribution of the CARICOM integration arrangements to countries economic gain with 24 percent indicati ng considerably and 52 percent somewhat. Policy respondents perceived that all the critical business factors had a positive impact on the investment climate. They al so viewed the policies they were formulating to have a positive impact except on excha nge rate and exchange rate management about which they indicated no impact or neutral. CA RICOM policies were seen to have a positive impact on the critical business factors excep t for exchange rate and exchange rate management. All CARICOM policy areas were projected to have a positive impact on investment. Policy respondents were quite op timistic about the cont ribution of CARICOM arrangements to countries economic gain with 24 percent indicati ng considerably and 44 percent somewhat. Firms Supplemental Comme nts and Observations The supplemental comments and observations provided by firm re spondents provided insight into various aspects of the institutional structures within the Caribbean Community that require policy attention in orde r to enhance the business enviro nment. Among the issues raised were reducing bureaucratic cons traints to the implementation of announced policy measures; a call for a general revision of the institutional structures, such as doubl e taxation arrangements, maritime boundary delimitation and multiple stoc k exchanges; and incentives to promote indigenous raw material use, production integration and crossborder partnerships all within the context of economies of scale. The persistence of market entry barriers was also identified as a major constraint to business growth.

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182 It was suggested that prevailing national le vel circumstances woul d thwart investment growth, despite articulated CARICOM policies. The implication is that greater consideration was required of the diversity of economic characteristics that exist between and among CARICOM member states, when designing and formulating CARICOM policies. This seems to call for a more deliberate attempt at engaging national pol icy makers and target stakeholders in the regional policy formulation process. Capacity building within the cad re of national policy makers, particularly in the OECS states, was identified as being necessary. A more targeted policy design and formulation process may also be required to catalyze th e formation of potential linkages between and among entrepre neurs. Innovative policy desi gn will be required to resolve some business constraints, such as transportation, that result from the ge ographical configuration of the Caribbean Community. In summary, the dyna mism within many sect ors of the local and regional economies was perceived as a challenge to the CARICOM policy formulation process. Issues Pertinent to Surveys in General There are four major sources of error in surveys: coverage, sa mpling, non-response and measurement. Coverage error involves a mismatch between the target population and the frame population. Non-response bias obtains when there are sign ificant differences between respondents and non-respondents on th e issues of interest. Samp ling error occurs during the process of selecting the sample from the frame population. Meas urement error arises when the respondents replies differ from their true va lue (Couper, 2000). Generally, in qualitative research, the assumption is that coverage, samp ling and non-response errors are not as important as in quantitative rese arch. With the objective of qualitati ve research being to understand a phenomenon rather than to make inferences, the quality of the information gathered, or the reduction of measurement errors, is of greater co ncern (Coderre et al., 2004). For this research,

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183 the methodology used for the selection of the samp le frame would have considerably minimized any coverage and sampling error. Fricker et al. (2005) reported on an experiment conducted on a comparison of web and telephone surveys. They found a mu ch lower response rate for those who were administered the web survey (51.6%) compared with two groups who were admi nistered a random digit dial (RDD) telephone survey (97.5% and 98.7%), desp ite higher cash incentives to those who were administered the web survey. In a separate study, Ilieva et al. (2002) provide a comparison of response rates to email and mail surveys separate ly conducted by eleven re searchers. In seven instances the email surv ey response rates were lower than the mail survey response rates (6% email vs. 20% mail; 6% email vs. 27% mail; 7% email vs. 52% mail; 19% email vs. 56% mail; 52% email vs. 65% mail; 29.8% email vs. 35.7% mail; 54.3% email vs. 56.5% mail). In four instances the email response rates were higher (58% email vs. 57.5% mail; 50% email vs. 32% mail; 68% email vs. 38% mail; 75% email vs. 76% mail). Fricker et al. (2005)also reported that web surveys were perceived advantageous in comparison to mail surveys for reducing measurement errors. Predominantly email and web surveys were used to collect the data for the qualitative component of this research. In light of the above discussion it can be concluded that coverage and sampling errors were considerably reduced measurement errors minimal and non-response bias acceptable in comparison to other studies. Trade and Investment Analysis There is indication that th e Caribbean Community experi enced both trade creation and trade diversion, but the results are inconclusive about which wa s the more dominant. There is also strong evidence of growth in investment and capital stock.

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184 Implications Economic Gains from CARICOM Arrangements The first objective of this research project wa s to empirically estimate the extent to which CARICOM experienced economic gains since it s inception. Two empirical techniques were used, analyzing the trade data and surveying eco nomic agents and policy makers for selected countries. The analysis of the trade data disclosed evidence of both trade creation indicating there were economic gains and trade diversion, suggesting the experien ce of welfare losses. These results are not sufficiently ro bust to definitively weigh overall in favor of welfare gains or losses. Further analyses on the trade will be required for such a determination. The view of 67 percent of the entrepreneur s responding to the survey was that the CARICOM arrangements contributed only mini mally (37%) or somewhat (30%) to the economic gains experienced by the countries. A minority (15 %) thought the contribution was considerable while some (11%) were uncertain. Prev ious reference was made to the report of the Gonzales (2002) study, sponsored by the Inter-A merican Development Bank and the Institute for the Integration of Latin America and the Cari bbean (IDB-INTAL), that CARICOM experienced weak economic gains and moderate trade and inve stment integration. The findings of this study support those of Egoum-Bossogo and Mendis (2 002) that there has been increased intraCARICOM trade despite increased trade with the rest of the world. However a more precise determination of the relative gains to members from the CARICOM arrangements will require an inter-industry and an intra-industr y trade analysis using trade data disaggregated at the singledigit Standard Interna tional Trade Classifica tions (SITC) level as proposed by Bergstrand (1989).

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185 Dynamic Impact of CARICOM Arrangements The results of the empirical analysis of i nvestment and productivity performance of the target countries suggest moderate growth in the capital stock formation. The extent to which the CARICOM arrangements contributed is uncertain. From the interview and survey responses, at least two instances of dynamic impact of CA RICOM arrangements can be identified, namely: enhancement of scope of operations and an expans ion of market size. Pert aining to the scope of operations, some firms indicated that functioning in the CARICOM market afforded them the opportunity to improve their modus operandi and for eventual grad uation to functioning efficiently in the global market. Five percent of the respondents reported operations in another country. There was one such respondent in each of the target countries with the greater numbers being in Trinidad and Tobago and St. Lucia. Th ese respondents were spr ead across each of the firm size groupings, and were predominantly from manufacturing, services (professional) and trade and commerce, indicating th at the operational scope enhancement dynamic effects were not limited to a particular group of firms. Some interviewees pointed to the CARICOM arrangements increasing their target market. Others acknowledged an increase in market si ze but could not attribute that increase to the CARICOM arrangements. Yet still, others made reference to experi encing non-tariff barriers (NTBs) that are presumed to have a constraini ng impact on attempts at increasing their market size. Collectively, these responses suggest th at the accurate impact of this dynamic effect requires further investigation. Perception of Firms and Policy Makers The interview responses conveyed that both en trepreneurs and policy makers were of the view that CARICOM was a good concept. However, entrepreneurs did no t share the view of policy makers that CARICOM contributed to the strengthening of the business environment. The

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186 survey responses indicated that the collective of firms perceived the CARICOM policies or policy areas making a limited positive contribution to their business environment, such as with access to markets and the CET. Examination of th e data disaggregated by country, firm size or sub-sector of operation presents a more insightful profile. This s uggests the need for a more indepth understanding of the economic environment influencing respective firm types as a prerequisite to policy formulation. Firms perception of the investment environment was similarly varied displaying a more optimistic expectati on of the influence of CARICOM policies and policy areas on their investment decisions. Econometric analyses were undertaken on th e survey responses to four business variables: the cost of capital, exchange rate, availability of technol ogy and access to markets. The results demonstrated a statistically significant perception by entrepreneurs of the influence of national policy only on each of the variables, except for availability of technology where the CARICOM policy was also perceived influential at a statistically significant level. The simulation of the probabilities associated with th e parameter estimates did not reveal any evident pattern from a comparison of th e respective probability distribu tion functions of the respective variables, across perceived levels of variable im pact. The implication is that the impact of each business variable should be separately consid ered in the policy fo rmulation process. The policy makers who responded to the survey generally had a posi tive perception of the impact of their own policies as well as the CARICOM policies and policy areas, for both the current business environment and for the investme nt climate. That there is such a marked divergence of views betw een entrepreneurs and policy makers is instructive. Detre et al.(2006) demonstrate that, within the United States (US) the market reacts to the agricultural policy proposals at defined stages in th e policy formulation process. On the assumption that the market

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187 reaction to policy formulation is not unique to the US market, th is divergence of views between policy makers and entrepreneurs within the CARICO M countries suggests that firms reaction to the policies is contrary to the policy makers expectation of th e impact of the policies. One possible explanation for this diverg ence of views is that policy make rs have a vested interest in their work accompanied by a narrow focus. In c ontrast, entrepreneurs co uld be considered to have a much broader outlook. It may also be that the current policie s are ineffectual in stimulating the entrepreneurial resp onse anticipated by policy makers. Assessment of Impact of CARICOM A rrangements on Economic Gains Firms offered a relatively conservative re sponse to the percep tion of the CARICOM arrangements contributing to countries econom ic gains, with only 15 percent indicating considerably while 37 percen t responded minimally and 30 percent somewhat. Policy makers were more optimistic with 24 percent re sponding considerably and 52 percent indicating somewhat. The results of the analysis of trade data were inconclusive on this issue. A more precise indication of th e balance between trade diversi on and trade creation can only be obtained from further analysis on the tr ade at the single digit SITC level. Alternative Policies and Strategies The stages outlined in the preparation of the recent vision and policy proposal framework on the CARICOM Single Market and Economy (CSME) (Girvan, 2007) represent a typical approach to the design and a doption of CARICOM policies. Th is policy statement embodied inputs from various regional fora It was refined based upon consul tation with selected regional stakeholder representatives and comments from a series of CARICOM Mi nisterial Bodies, prior to approval by the Heads of G overnment of CARICOM in July of 2007. The report pursues a broad scope of coverage in addres sing issues relevant to the visi on for the CSME then elaborates on the economic dimension of that vision. Within the context of this research project there are

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188 two noteworthy aspects of the Gi rvan (2007) report, its elaborat ion on the scope of stakeholder consultations and its references to the conduct of technical studies to support future policy measures. On the first issue, the report refers to the par ticipation of over 300 stakeholders in a preparatory regional forum, without giving details on their affiliati on. An earlier published report referred the involvement of re presentatives from regional ag encies such as the CARICOM Secretariat (CCS), the Caribbean Developmen t Bank (CDB), the Caribbean Association of Industry and Commerce (CAI C), the Secretariat of the Organisa tion of Eastern Caribbean States (OECS ), the Caribbean Congress of Labour (CCL) a nd the University of the West Indies (UWI) (Girvan, 2006). Two of these orga nizations represent agents activ e in the economy. The CAIC is the umbrella organization repres enting the interests of the priv ate sector from 20 Caribbean countries at regional and internat ional fora (Caribbean Association of Industry and Commerce, 2004). The CCL is a regional trade union fede ration representing members from affiliated unions across 17 Caribbean c ountries (Wikipedia, 2007). Diversity in the CARICOM busin ess environment is evident from the survey results as well as the membership profile of the Trinidad and Tobago Ch amber of Industry and Commerce whose 524 members are spread across 28 different sub-groups with a distribution weighted towards firms with a smaller number of employees and or a lower gross a nnual income (Ferreira, 2007). The comments entrepreneur s offered during the interviews indicate evidence of weak institutional structures availabl e to provide feedback from firms at the operational level in the business environment to regional level policy framers. Therefore, the extent to which consultation with the CAIC and CCL adequately embodies views from a representative sample of firms in CARICOM is questionable. A more inclusive and comprehensive consultative

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189 process, that embodies representa tion of views and input from th e diverse firm types reflected by the extant business environment profile, seems likely to be more effective in informing the policy design process, by offering greater in sights in the design and formulation of policy appropriate for the stat ed development goals. The Girvan (2007) report makes extensive refe rence to the need for technical studies in support of more targeted policy m easures without detai ling the extensiveness of the studies. The results of this research suggest that appropriate ly designed industry spec ific empirical studies, similar to those that informed the World Ba nk (2005) report on the Caribbean and the Sapir (2004) report on the European Uni on are useful alternatives to c onsider for informing the policy formulation process. Appropriately designed empi rical studies will provide critical information on the business environment thus enabling the form ulation and subsequent monitoring of more targeted policies. The Caribbean Community faces some unique challenges in its attempt to achieve the developmental goals identified w ithin the CSME. One of these identified by Girvan (2007) and respondents to the survey is th e issue of inter-regi onal transportation for commerce. A second important challenge cited by interv iew respondents is the divergence of critical characteristics of the economies of some members. A third is th e design of an appropriate package of policy incentives that will encourage entrepreneurs into cr oss-border investment in order to benefit from scale economies that are anticip ated to come from production in tegration. A deeper and more extensive dialogue involving respective firms and countries will likely contribute to solutions that are more workable. Research Timeline The components of this research span different time periods. The trade and investment data analyses covered the period 1981-2005. In the su rvey of firms and policy makers, respondents

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190 were invited to respond to perceptions of th e current business envir onment and the future investment environment. The research resu lts therefore presents two complementary perspectives. The somewhat somber findings pe rtaining to the historic and current periods contrast sharply with the optimistic views of en trepreneurs for the future. The surveys did not focus on the CSME but some respondents were aware of the general CSME pronouncements, in light of their interview and supplemental comments Accordingly, one possi ble implication of the optimistic entrepreneurial view of the future is that policy proposals to be developed under the CSME will be very beneficial to firms. Acceptanc e of this inference reinforces the proposal for the pursuit of a more inclusive strategy for policy development for the CSME. Conclusions The first hypothesis was that the economic agents within CARI COM recognize benefits from the preferential trading arrangements of CARICOM. The results of the interviews and surveys suggest that this hypothesis can be accepted. Th e second hypothesis was that CARICOM preferential trading arrangement s have contributed to the eco nomic gains of its member countries. The results are such that we fail to reject th is hypothesis. Pertaining to the first objective of this resear ch the conclusion is that CARICOM countries experienced both trade creation a nd trade diversion. However the results are inconclusive about which was more dominant and consequently whethe r there were net economic gains from interregional trade. The majority of firms surveyed could be described as only weakly optimistic about the CARICOM arrangements contributing to their countries economic gains. For the second objective the results indicate a moderate growth in capital stock formation. The third objective was to ascertain the vi ew of firms concerning the polic y measures influencing their business environment. In general, the per ception of the influen ce of national policy predominated. The results demonstrated a statistic ally significant perception by entrepreneurs of

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191 the influence of national policy on the four business variables s ubjected to econometric analyses. For only one variable was the in fluence of CARICOM policy percei ved statistically significant. In light of the above and pertaini ng to the fourth research objectiv e, it can be concluded that, to date, the CARICOM policy measures likely only weakly influenced in the economic gains experienced by the countries. Another key conclusion of this research is that the business envi ronment of CARICOM is extremely diverse in firm size, areas of opera tion and geographical scope of operation. Diverse economic and operational characteristics are ev ident among the entrepre neurial sector in CARICOM. The sector includes large firms, many of which contribute a gr eat deal to absorption of employment, are multi-sectoral in scope of ope rations and operate globally. Micro firms, some of which also operate globally and across sub-se ctors, are the largest group of firms. These divergent circumstances pose a challenge in the design and formulation of policy to catalyze the actions of those firms. On this, the conclusion is that the considerable heterogeneity within the CARICOM business environment, as indicated by the survey responses from the five countries in this study, should be deliberat ely considered in devising a polic y formulation process intended to stimulate increased economic gains for CARICOM. In order to reflect a comprehensive set of inputs from the business environment, the polic y formulation process within CARICOM should be sufficiently inclusive to reflec t representative participation of the major sub-groups of firms, across the countries. Country economic characteristics are also diverse as are those across subsectors. Many of these such as the debt burden, cost and availabi lity of capital and the quality of the labor force have a direct impact on output. Overlooking th ese differences seems detrimental to the achievement of the developmental goals of CARI COM. To complement an inclusive process for

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192 firms, the policy formulation process and stra tegy should also actively and deliberately embrace consideration of the economic a nd related characteristics exhi bited by countries and the subsectors of the respective economies. National policies are percei ved by respondents and indicated by the econometric analyses to be of greater influence on the business enviro nment than CARICOM policies. This reinforces the need for a more active infusion of the circum stances of the national economic environment in the regional policy formulation pr ocess. It also suggests that complementarity between national and regional policies ought to be more closely examined. The results of the trade and i nvestment analysis indicate th at both trade creation and trade diversion were experienced. For a definitive conclusion on the gains from trade, further research will be required at a more disaggregated SITC level, as indicated below. While labor productivity was not explicitly examined in this study, based on some comments from the interviews and surveys, there may be need for policies to improve the productivity of labor to complement the investment flows and th e strong growth in the capital stock. The weak perception among firms of the econom ic gains from CARICOM policies and the results of the econometric analysis of the respons es to the policy impact on the business variables suggest an ineffectual impact of CARICOM policy on the business environment. This may be an indication of some level of detachment betw een the policy makers, the policy formulation process and the economic agents. Implicit in the drive for establishing preferenti al trading arrangements is the anticipation of securing opportunities for benefiting from scale economies that come from production integration (Balassa, 1961). This was among the be nefits to integration envisaged in the earlier projections for CARICOM (Brewster and Thomas, 1967). However, the geographical

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193 configuration of the Caribbean Community pos es some unique challenges to establishing production linkages among some firms. These circ umstances indicate th e need for innovative policy design in order to form ulate appropriate incentives to catalyze production and other economic linkages among the firms. This again suggests a more inclusive policy formulation process. In addition, the influen ce of trade with the ma jor external trading partners suggests that a more in-depth analysis of intr a-regional trade at a disaggregated level will be more appropriate in providing additional insight s into the benefits from the CARICOM economic integration arrangements, as advocated for developi ng countries by Cooper and Massell (1999). Limitations of the Research There are some limitations to this study. Foremost among th ese is the paucity of policy makers interviewed. The opportunity to have spoken with a greater num ber of those respondents would have contributed to increa sed insights into the challenges faced by policy makers as they seek to merge national and CARICOM interests for strengthening the business environment. A second research constraint, also pertaining to policy makers, is the low absolute number of survey respondents. An increas ed number of survey policy re spondents would have strengthened the results of the descriptive analysis. It would also have allowed the conduct of econometric analysis on those responses. It has been argued ab ove that the level of re sponses to the survey by firms is sufficient to provide adequate inferen ces and guidance in the po licy formulation process. Notwithstanding this position, res ponses from a greater number of firms would have enhanced the robustness of the work. One crit ical limitation pertaining to the analysis of the trade data was the unavailability of data on the existing tariff levels of the ta rget countries for all but one year, over the period 1981-1992.

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194 Further Research The conduct of further research on the impact of trade in goods disaggregated by the single digit SITC sub-groups, as disc ussed by Bergstrand (1989),would pr ovide insight on the relative contributions of the sectors of the economy a nd greater guidance with the policy formulation process. Similar research on th e impact of trade in goods vers us trade in services within CARICOM would also be useful. Future research focused on the identifi cation of market and producer environment linkages with in CARICOM can also provide a data base that would allow a more informed policy making process at both the national and regional levels.

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195 APPENDIX SURVEY INSTRUMENTS Firms CARICOM Firms Survey Research Subject Information and Consent Form The University of Florida-Gainesville, Florida, U S A TITLE: Assessment of the Impact of Caribbean Community (CARICOM) Economic Policies on the Business Environment in selected CARICOM States SPONSORS: Center for Latin American Studies of the University of Flor ida; International Agricultural Trade and Policy Center of the Univers ity of Florida, C ARICOM Secretariat, CARIFORUM INVESTIGATORS: Dr. J VanSickle and Mr. Ronald M Gordon Dear Enterprise Owner or Manager, We welcome your participation in this survey. The surv ey is intended to identify your perspectives on the policies and the policy environment that support and contribute to the economic well being of business enterprises in selected countries of the Caribbean Community (CAR ICOM). Your inputs are vital and will assist both the national and regional efforts to promote an environmen t friendly to entrepreneurial activity in the Caribbean. This research study will gather information and data th at will be used for the benefit of all industrial and commercial enterprises in CARICOM23. The analysis of the collective responses could potentially influence refinements in the policy formulation process to the improvement of the business environment in which you operate. There are no direct benefits, risks or compensation to you for participation in this study. As a consequence, your voluntary participation will be immensely helpful. Please take time to read this consent form before decidi ng whether to participate. Your participation is entirely voluntary and you can elect not to take part, if you wish. Your participation will require about 45 minutes of your time. Strict confidentiality will be maintained concerning all in formation obtained through this survey; only averages or totals for respondents will be disclosed in reports on the findings of this survey. For questions about this survey you may contact either of the researcher s listed below. Questions about human subjects research approvals for this project may be directed to the University of Florida Institutional Review Board, PO Box 112250, Gainesville FL 32611-2250 or to irb2@ufl.edu with reference to protocol UFIRB # 2006-U-565. Thank you for your cooperation. John J VanSickle Ronald M Gordon University of Florida University of Florida PO Box 110240 PO Box 110240 Gainesville, FL 32611 Gainesville, FL 32611 352-392-1826x221 352-392-1826x219 sickle@ufl.edu rmg251@ufl.edu 23 Scope of interest encompasses enterprises within: Agri culture, Fisheries, Manuf acturing, Mining, Services (including Tourism), and Trade.

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196 Purpose To evaluate the scope of impact of the Caribbean Community (CARICOM) policies and or national government policies on the firms production and investment decisions Objective To develop a database on the policy parameters influencing the decisions of enterprises or firms within the selected member states of CARICOM in order to: Evaluate the main issues considered by enterprises or firms when making decisions affecting the enterprises or firms; Identify and characterise those issues as to whether they are influenced by national policies or CARICOM policies; Determine the extent to which enterprise or firm owners are influenced by CARICOM policies in the determination of their investment and marketing decisions. Scope The survey population is enterprises and firms involved in Agriculture, Fisheries, Manufacturing, Mining, Services (including Professional services, Tourism & Hospitality) an d Trade in a representative group of CARICOM Member States. The investigation will encompass enterprises and firm s of varying sizes and will pertain to the enterprises and firms consideration of marketing, production, investment and related issues. Results ( What will be done if you take part in this research study ?) The responses will be analysed, and the aggregated results will be used to evaluate the impact of the CARICOM Policies on the decisions influencing the economic viability of the enterprises or firms within the Caribbean Community, as represented by the re spondents from the selected countries surveyed. These findings will be extremely useful in developing and refining CARICOM policies with respect to the promotion of growth of the business community within CARICOM. Upon completion of the study, you will be informed of the studys overall findings and may be consulted further. As indicated earlier, please note that the response s will be aggregated and all responses will be treated confidentially QUESTIONNAIRE Section I General Information 1. Please indicate the country locati on of your enterprise or firm: Country________________ 2. Where is your enterprise located? Please tick ( ) Urban area_____________ Rural area_______________ 3. In which sub-sector do you operate? Please tick ( ) all that apply: a) Agriculture_______ b) Fisheries_________ c) Manufacturing _________ d) Mining _________ e) Services (Tourism & Hospitality) _________ f) Services (Professional or Other) ____________ g) Trade and Commerce________ h) Other (please list) ____________________ 4. Do you operate in another country? ___________ Yes ____________ No If yes please list that country: ______________________________________________________________ 5. How many workers do you employ? Full time year round workers: ____________ Part-time year round workers________________ Full-time seasonal (peak period) workers: _________ Part-time seasonal (peak-period) workers: ________ 6. Please indicate ( ) the size of your business (based on annual sales volume: US $) Micro = Less than US $1.0 million (______) Small = US $ 1.0 million to US $2.5 million (______) Medium = US$ 2.5 million to US$ 6.5 million (______)

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197 Large = Greater than US$ 6.5 million (______) Business Environment Evaluation The entrepreneurial experience worldwide as well as relevant academic literature have indi cated that critical factors such as: interest cost on borrowed capital, exchange rate management, rate of inflation, cost of labour, cost of inputs, availability of technology, ease of acce ss to markets and instituti onal structures and arrang ements to facilitate the conduct of business contribute in various ways to viable and profitable business activities and investments. These concepts are commonl y interpreted as follows: Interest costs : the amount of money paid by a borrower for the opportunity to use borrowed funds; Exchange rate : refers to the cost in local currency of purchasing one unit of fo reign currency; and, Exchange Rate Management : refers to the system of determining the purchase price of the unit of foreign currency, usually floating (or determined by market forces of supply and demand) or fixed (set by the government or central bank); Rate of inflation : the change (increase) in the level of prices of a standard basket of consumer goods from one reference period to the next period; Cost of labour : the average cost (wages) of employing the labour required for an enterprise or firm; Cost of inputs : the cost of materials used in a production or manufacturing process or a service enterprise; Technology : The technical inputs an enterprise or firm uses in its production or manufacturing process, or service enterprises; Markets : An amorphous collective of buyers and sellers for a specific product or service; Institutional structures : Formal rules, statutes, traditions and arrangem ents, agreed to by social groups, for the use of land, credit and other resources in the conduct of economic activities. Section II Perception of Policy Impacts In light of the above concepts and context please review and respond to the following: Impact Evaluation of Business Operations 7. As you review the current circumst ances please rate the impact of each of the following factors on your business operations. Please indicate on a scale of -3 to +3, where -3 = strong negative impact, 0 = no impact (neutral), and +3 = strong positive impact. Re spond U if you have no view or are uncertain or N/A if not applicable. 1) Cost of capital________________________________ 2) Exchange rate _______________________________ 3) Exchange rate management______________________ 4) Rate of inflation _______________________________ 5) Cost of labour ( unskilled) _______________________ 6) Cost of labour ( skilled) _________________________ 7) Cost of inputs ( local) __________________________ 8) Cost of inputs (foreign) __________________________ 9) Availability of technology ___________________________ 10) Ease of access to market s _____________ ________________ 11) Institutional structures ________________________________ 12) Other elements (please list, then rank)________________________ Perception of National Level Policies In order to promote the growth of business in an economy a government may, among other things, seek to pursue policies to minimise the cost of capital, maintain a stable exchange rate and rate of inflation, minimise the cost of labour, minimise the cost of inputs, promote access to technology as well as to markets and facilitate the establishment of institutions for the conduct of economic activities.

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198 8. How do you perceive the policies of the government of the country in which you operate with respect to the critical factors that impact on your business operations? Please indicat e on a scale of -3 to +3, where -3 = strong negative impact, 0 = no impact (neutral), and +3 = strong positive impact. Respond U if you have no view or are uncertain or N/A if not applicable. 1) Cost of capital __________________________ 2) Exchange rate ___________________________ 3) Exchange rate management ____________________ 4) Rate of inflation ______________________________ 5) Cost of labour ( unskilled) ______________________ 6) Cost of labour (skilled) ________________________ 7) Cost of inputs ( local) _________________________ 8) Cost of inputs (foreign) ________________________ 9) Availability of technology ___________________________ 10) Ease of access to market s _____________ ______________ 11) Institutional structures ________________________________ 12) Other elements (please list, then rank) ___________________________ CARICOM Level Policies The CARICOM Treaty broadly outlines a policy agenda in several areas in support of the preferential trading agreement among the member states This policy agenda relates to, inter alia agricultural and industrial development, services, tourism, trade an d transport. It also includes special pr ovisions for disadvantaged countries, regions and sectors. For ease of reference an indicative summary of the respective policy goals is provided. Tariff Regime The policy goal was the removal of tariffs on intra-zonal trade and the establishment of a common tariff on goods originating from outside of CARICOM, usually referred to as a common external tariff or CET, in accordance with the Treaty estab lishing CARICOM. An October 1992 decision of the Conference of Heads of Government of CARICOM agreed to the establishment of a CET regime with implementation to be phased in commencing in January 1993 and completed in 1998. Within the tariff structure products were classified as either inputs (primary or intermediate) or final goods with each category being further delineated as competing or non-competing with regionally produced goods. An extra-regional import was deemed to be competing with like regional production and required to face the CET in instan ces where existing regional producti on exceeded 75% of regional demand. Conversely an extra-regional import was considered non-competing if the existing level of regional production did not satisfy the 75% minimum of regional demand. In add ition there was a special tariff structure for the LDCs. Rules of Origin Rules of Origin (RoO) prescribing conditions under whic h goods in intra-zonal trade can benefit from regional (tariff) preferences were associated with the development of the structure of the tariff. To qualify goods must either be wholly produced within CARICOM or have been produced wholly or partly from materials imported extraregionally through a process of substantial transformation th at satisfies specified trade classification characteristics. The RoO were intended, inter alia to strengthen the productive sector and accelerate exports becoming internationally competitive. Joint Negotiation of Trade Agreements The Caribbean Community has also pursued the joint ne gotiation of trade arrangements and donor assistance programs on behalf of its members, coordinated through an agency or a unit established specifically for this purpose. Agriculture and Fisheries

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199 The Caribbean Community level policies pertaining to agricu lture relate to the achievement of a market oriented, internationally competitive and diversified sector taking into consideration the differe nces in resource endowment and economic development of the member states. For fisheries the goal is the development, management and conservation of the fisheries resources on a sustainable basis. Industry and Services The goal of industrial policy is the facilitation of marketled internationally competitive production of goods and services For services the goal is to promote the development of the services sector in order to stimulate the economic complementarities and economic development of member states. Tourism The goal of the tourism policy is sustainable tourism development, in collaboration with competent international organisations, while conserving cultural and natural resources. Transport. The goal of the transport policy relates to the provision of adequate, safe and internationally competitive transport services for the Community. Establishment, Capital and Movement of Persons The policy goals ultimately address the right of citizens of member states of the Caribbean Community to establish enterprises in any member state, move capital between and among the members as well as the unrestricted movement of labour. Perception of CARI COM Level Policies In light of the above indicative summary: 9. How do you perceive the impact of the policies of CARICOM, collectively, with respect to the critical factors pertaining to your business operations? Please indicate on a scale of -3 to +3, where -3 = strong negative impact, 0 = no impact (neutral), and +3 = strong positive impact. Respond U if you have no view or are uncertain or N/ A if not applicable. 1) Cost of capital _____________________________ 2) Exchange rate _______________________________ 3) Exchange rate management __________________________ 4) Rate of inflation _______________________________________ 5) Cost of labour ( unskilled) ________________________________ 6) Cost of labour ( skilled) __________________________________ 7) Cost of inputs (local ) ____________________________________ 8) Cost of inputs ( foreign) ___________________________________ 9) Availability of technology _____________________________________ 10) Ease of access to markets __ ______________ _______________ __________ 11) Institutional structures _____________________________________________ 12) Other elements (please list, then rank) _______________________________________ 10. Referring to the CARICOM policy areas stated can you identify any as having impact on your business operations? Please indicate on a scale of -3 to +3, where -3 = strong negative impact, 0 = no impact (neutral), and +3 = strong positive impact. Respond U if you have no view or are uncertain or N/A if not applicable.

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200 1) Implementation of the CET_____________________________ 2) Rules of Origin _____________________________ 3) Trade negotiations (WTO) _____________________________ 4) Trade negotiations (EU) _____________________________ 5) Trade negotiations ( Other) ____________________________ 6) Agriculture _____________________________ 7) Fisheries _____________________________ 8) Industry _____________________________ 9) Services (Tourism & hospitality) ________________________ 10) Services ( Professional & other) ________________________ 11) Transportation _____________________________ Section III Evaluation of Environment for Investment Enterprise Outlook on Desirable Investment Climate 11. When you contemplate future investment in the business environment in which you operate how do you rate the importance of the following factors? Please indicate (+) = a positive impact, (0) = no impact (neutral) and (-) = a negative impact. Respond U if you have no view or are uncertain or N/A if not applicable. 1) Cost of capital _____________________________ 2) Exchange rate ______________________________ 3) Exchange rate management __________________________ 4) Rate of inflation _______________________________________ 5) Cost of labour ( unskilled) ________________________________ 6) Cost of labour (skilled) ____________________________________ 7) Cost of inputs (local) _____________________________________ 8) Cost of inputs ( foreign) ____________________________________ 9) Availability of technology _____________________________________ 10) Ease of access to markets __ ______________ _______________ __________ 11) Institutional structures _____________________________________________ 12) Other elements (please list, then rank) _______________________________________ Enterprise Outlook on National Governments influence on Desirable Investment Climate As previously stated, in order to promote the growth of business in an economy a government may, among other things, seek to pursue policies that would minimise the cost of capital, maintain a stable exchange rate and rate of inflation, minimise the cost of la bour, promote access to technology as well as to markets and facilitate the establishment of institutions for the conduct of economic activities. 12. To what extent do you perceive that your government s policies and their impact on the factors listed will influence your future investment decisions? Please indicate (+) = a positive impact, (0) = no impact (neutral) and () = a negative impact. Respond U if you have no view or are uncertain or N/A if not applicable. 1) Cost of capital _____________________________ 2) Exchange rate _______________________________ 3) Exchange rate management __________________________ 4) Rate of inflation _____________________________________ 5) Cost of labour (unskilled) _______________________________ 6) Cost of labour (skilled) ________________________________ 7) Cost of inputs (local) ____________________________________ 8) Cost of inputs (foreign) ___________________________________ 9) Availability of technology _____________________________________ 10) Ease of access to markets __ ______________ _______________ __________ 11) Institutional structures _____________________________________________ 12) Other elements (please list, then rank) _______________________________________

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201 Enterprise Outlook on CARICOMs influence on Desirable Investment Climate With reference to the indicative summary of the CARICOM policy agenda: 13. How do you perceive that the collective CARICOM policie s and their impact on the factors listed will influence your investment decisions? Please indicate (+) = a positive impact, (0) = no impact (neutral) and (-) = a negative impact. Respond U if you have no view or are uncertain or N/A if not applicable. 1) Cost of capital _____________________________ 2) Exchange rate ________________________________ 3) Exchange rate management __________________________ 4) Rate of inflation _____________________________________ 5) Cost of labour ( unskilled) _______________________________ 6) Cost of labour (skilled) __________________________________ 7) Cost of inputs (local) ___________________________________ 8) Cost of inputs (foreign) ___________________________________ 9) Availability of technology _____________________________________ 10) Ease of access to markets __ ______________ _______________ __________ 11) Institutional structures _____________________________________________ 12) Other elements (please list, then indicate) _______________________________________ 14. Can you identify any CARICOM polic y area that seems likely to infl uence your investment decisions? Please indicate (+) = a positive impact, (0) = no impact (neutral) and (-) = a negative impact. Respond U if you have no view or are uncertain or N/A if not applicable. 1) Implementation of the CET __________________________ 2) Rules of Origin __________________________ 3) Trade negotiations __________________________ 4) Movement of capital __________________________ 5) Movement of persons ___________________________ 6) Rights of establishment __________________________ 7) Agriculture ___________________________ 8) Fisheries ___________________________ 9) Industry ___________________________ 10) Services (Tourism & Hospitality) ___________________________ 11) Services ( Professional & other) ___________________________ 12) Transportation ___________________________ Section IV Comparative Evaluations National Policies and CARICOM Policies 15. In light of your earlier responses, how would you compare the importance of your national governments policies versus the CARICOM policies with respect to their influencing the critical business factors of importance to the viability of your enterprise/firm? Please indicate on a scale of 1 to 4, where 1 = least important and 4 = very important. Respond U if you have no view or are uncertain or N/A if not applicable.

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202 Important Factors National Policies CARICOM Policies 1) Cost of capital 2) Exchange rate management 3) Rate of inflation 4) Cost of labour 5) Cost of inputs 6) Availability of technology 7) Ease of access to markets 8) Institutional structures 9) Other elements (please list, then rank) Overview 16.From your perspective, has the CARICOM economic integration arrangements contributed to the economic gains in your country? Please indicate on a scal e of 1 to 4, where 1= no impact, 2 = minimally, 3= somewhat and 4 = considerably. Respond U if you have no view or are uncertain. ______________________ 17. From your perspective, can th e CARICOM economic integration arra ngements contribute to increased investment in your country? Please indicate on a s cale of 1 to 4, where 1 =no impact, 2 = minimally, 3 = somewhat and 4 = considerably. Respond U if your have no view or are uncertain._______________________ 18. If you so desire, please make or add any general or specific comment(s) that would supplement your responses above and assist this analysis. ________________________________________________________ _________________________________________________________________________________________ _________________________________________________________________________________________ _________________________________________________________________________________________ _________________________________________________________________________________________ _________________________________________________________________________________________ Thank you for your participation and the time you invested in the completion of this questionnaire. John J VanSickle Ronald M Gordon University of Florida University of Florida

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203 Policy Makers Survey of National Level Policy Framers within CARICOM Member States Research Subject Information and Consent Form The University of Florida-Gainesville, Florida, U S A TITLE: Assessment of the Impact of Caribbean Community (CARICOM) Economic Policies on the Business Environment in selected CARICOM States SPONSORS: Center for Latin American Studi es of the University of Florida; International Agricultural Trade and Policy Center of the University of Florida; CARICOM Secretariat; CARIFORUM INVESTIGATORS: Dr. J VanSickle and Mr. Ronald M Gordon Dear Policy Framer, We welcome your participation in this survey. The su rvey is intended to examine your perspectives on the interfacing of national level approaches to the creation of the economic an d institutional environment for the growth of business enterprises within your country and related policy issues collectively discussed and agreed among member states, for implementation within the Caribbean Community integration arrangements. This research study will gather information and data that will be used to promote the determination of a policy and institutional environment for the benefit of all industrial and commercial enterprises in CARICOM24. The analysis of the collective responses could potentially influence refinements in the policy formulation process that determines a business environmen t friendly to industrial and commercial enterprises in CARICOM. There are no direct benefits, risks or compensation to you for participation in this study. As a consequence your voluntary participation w ill be immensely helpful. Please take time to read this consent form before decidi ng whether to participate. Your participation is entirely voluntary and you can elect not to take part, if you wish. Your participation will require about 45 minutes of your time. Strict confidentiality will be maintained concerning all in formation obtained through this survey; only averages or totals for respondents will be disclosed in reports on the findings of this survey. For questions about this survey you may contact either of the researcher s listed below. Questions about human subjects research approvals for this project may be directed to the University of Florida Institutional Review Board, PO Box 112250, Gainesville FL 32611-2250 or to irb2@ufl.edu with reference to protocol UFIRB # 2006-U-565. Thank you for your cooperation. John J VanSickle Ronald M Gordon University of Florida University of Florida PO Box 110240 PO Box 110240 Gainesville, FL 32611 Gainesville, FL 32611 352-392-1826x221 352-392-1826x219 sickle@ufl.edu rmg251@ufl.edu 24 Scope of interest encompasses enterprises within: Agri culture, Fisheries, Manuf acturing, Mining, Services (including Tourism), and Trade.

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204 Purpose To determine the scope of impact of the Caribbean Community (CARICOM) policies and or national government policies on the economic and institutional environment influencing firms production decisions Objective To develop a database on the creation of the economic and institutional environment influencing the decisions of enterprises or firms within the selected member states of CA RICOM in order to: Ascertain the sources of stimuli that serve to shape the economic and institutional environment of enterprises or firms; Identify those economic and institutional factors that are deemed critical to the economic viability of the enterprises or firms in the target countries; Determine the extent to which the national economic and institutional environment is perceived influenced by national or CARICOM policies. Scope The survey population is public sector staff in the government ministries pertaining to Agriculture, Finance, Industry, Planning, Tourism, and Trade. Senior and middl e level public servants with responsibility for policy formulation and implementation will be surveyed. Results ( What will be done if you take part in this research study ?) The responses will be analysed, and the aggregated results will be used to evaluate the impact of the CARICOM policies on the decisions influencing the economic viability of the enterprises or firms within the Caribbean Community, as represented by the re spondents from the selected countries surveyed. These findings will be extremely useful in developing and refining CARICOM policy with respect to the promotion of growth of the business community within CARICOM. Upon completion of the study, you will be informed of the studys overall findings and may be consulted further. As indicated earlier, please note that the response s will be aggregated and all responses will be treated confidentially QUESTIONNAIRE Section I General Information 1. Please indicate the country in which you work: Country _____________________________ 2. Please indicate ( ) the government ministry in which you are located. Government ministry: a) Agriculture_____ b) Fisheries_____ c) Finance __________ d) Industry __________ e) Planning _______f) Tourism ______ g) Trade ____________h) Other ____________ 3. How many years have you served as a policy framer in the ministry in which you are located? Please indicate by ( ) in the appropriate category: a) Less than 2.5 years______ b) Greater than 2.5 but less than 5 years___________ b) Greater than 5 but less than7.5 years________ d) Greater than 7.5 but less than 10 years______ e) Excess of 10 years_________ 4. Have you served as a policy framer in a ministry other than the one in which you are currently located? Please indicate ( ): Yes______ No______ 5. If yes, in which ministry? Please indicate ( ) all former ministries that apply: a) Agriculture_______ b) Finance _______ c) Fisheries_______ d)Industry _____________ e) Planning __________ f) Tourism __________ g) Trade ___________ h) Other _________________

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205 6. What is the highest level of your academic training within your field of specialisation? Please indicate ( ): Diploma or Certificate__________, Higher National Diploma_________, Bachelors degree ______, Masters degree_________ Doctoral degree _____________ Other ( please list) ____________ 7. What is your field of speci alisation? Please indicate ( ): Agriculture ________ Agricultural Economics_______ Arts_______ Economics _________ Engineering__________ Fisheries Biology (or related field)____Industrial Engineering____ Management_____ Marketing ______Natural Science____ Sociology_____ Other (please state) ______________ Business Environment Evaluation The entrepreneurial experience worldwide as well as relevant academic literature have indi cated that critical factors such as: interest cost on borrowed capital, exchange rate management, rate of inflation, cost of labour, cost of inputs, availability of technology, ease of access to markets and institutional structures to facilitate the conduct of business contribute in various ways to viable and profitable business activities and investments. These concepts are commonl y interpreted as follows: Interest costs : the amount of money paid by a borrower for the opportunity to use borrowed funds; Exchange rate : refers to the cost in local currency of purchasing one unit of fo reign currency; and, Exchange Rate Management : refers to the system of determining the purchase price of the unit of foreign currency, usually floating (or determined by market forces of supply and demand) or fixed (set by the government or central bank); Rate of inflation : the change (increase) in the le vel of prices of a standard basket of consumer goods from a reference period to the next period; Cost of labour : the average cost (wages) of employing the labour required for an enterprise or firm; Cost of inputs : the cost of materials used in a production or manufacturing process or a service enterprise; Technology : The technical inputs an enterprise or firm uses in its production or manufacturing process, or service enterprises; Markets : An amorphous collective of buyers and sellers for a specific product or service; Institutional structures : Formal rules, statutes, traditions and arrangem ents, agreed to by social groups, for the use of land, credit and other resources in the conduct of economic activities. Further, in order to promote the growth of business in an economy, a government may among other things, seek to pursue policies that would minimise the cost of capital, ma intain a stable exchange rate and rate of inflation, minimise the cost of labour, promote access to technology as well as to markets and facilitate the establishment of institutions for the conduct of economic activities. Section II Perception of Policy Impacts In light of the above concepts and context please review and respond to the following: Perception of National Level Policies 8. How do you consider that the national policies you are involved in formulating and implementing impact on the critical business factors below? Please rank on a scale of -3 to +3, where -3 = strong negative impact, 0 = no impact (neutral) and +3 = strong positive impact. Respond U if you have no view or are uncertain or N/A if not applicable. a) Cost of capital __________________________ b) Exchange rate ___________________________ c) Exchange rate management ____________________ d) Rate of inflation ______________________________ e) Cost of labour (unskilled) ______________________ f) Cost of labour ( skilled) _________________________ g) Cost of inputs (local) ____________________________ h) Cost of inputs (foreign) __________________________ i) Availability of technology ___________________________ j) Ease of access to market s _____________ ______________

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206 k) Institutional structures ________________________________ l) Other elements (please list, then rank) ___________________________ CARICOM Level Policies The CARICOM Treaty broadly outlines a policy agenda in several areas in support of the preferential trading agreement among the member states This policy agenda relates to, inter alia agricultural and industrial development, services, tourism, trade an d transport. It also includes special pr ovisions for disadvantaged countries, regions and sectors. For ease of reference an indicative summary of the respective policy goals is provided. Common Tariff Regime The policy goal was the removal of tariffs on intra-zonal trade and the establishment of a common tariff on goods originating from outside of CARICOM, usually referred to as a common external tariff or CET, in accordance with the Treaty estab lishing CARICOM. An October 1992 decision of the Conference of Heads of Government of CARICOM agreed to the establishment of a CET regime with implementation to be phased in commencing in January 1993 and completed in 1998. Within the tariff structure products were classified as either inputs (primary or intermediate) or final goods with each category being further delineated as competing or non-competing with regionally produced goods. An extra-regional import was deemed to be competing with like regional production and required to face the CET in instan ces where existing regional producti on exceeded 75% of regional demand. Conversely an extra-regional import was considered non-competing if the existing level of regional production did not satisfy the 75% minimum of regional demand. In add ition there was a special tariff structure for the LDCs. Rules of Origin Rules of Origin (RoO) prescribing conditions under whic h goods in intra-zonal trade can benefit from regional (tariff) preferences were associated with the development of the structure of the tariff. To qualify goods must either be wholly produced within the community or have been produced wholly or partly from materials imported extraregionally through a process of substantial transformation th at satisfies specified trade classification characteristics. The RoO were intended, inter alia to strengthen the productive sector and accelerate exports to become internationally competitive. Joint Negotiation of Trade Agreements The Caribbean Community has also pursued the joint ne gotiation of trade arrangements and donor assistance programs on behalf of its members, coordinated through an agency or a unit established specifically for this purpose. Agriculture and Fisheries The Caribbean Community level policies pertaining to agricu lture relate to the achievement of a market oriented, internationally competitive and diversified sector taking into consideration the differe nces in resource endowment and economic development of the member states. For fisheries the goal is the development, management and conservation of the fisheries resources on a sustainable basis. Industry and Services The goal of industrial policy is the facilitation of marketled internationally competitive production of goods and services For services the goal is to promote the development of the services sector in order to stimulate the economic complementarities and economic development of member states. Tourism The goal of the tourism policy is sustainable tourism development, in collaboration with competent international organisations, while conserving cultural and natural resources.

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207 Transport The goal of the transport policy relates to the provision of adequate, safe and internationally competitive transport services for the Community Establishment, Capital and Movement of Persons The policy goals ultimately address the right of citizens of member states of the Caribbean Community to establish enterprises in any member state, move capital between and among the members as well as the unrestricted movement of labour. Perception of CARI COM Level Policies In light of the above summary: 9. How do you perceive the impact of the policies of CA RICOM, collectively, on th e business climate in your country? Please indicate on a scale of -3 to +3, where -3 = strong negativ e impact, 0 = no impact (neutral) and +3 = strong positive impact. Respond U if you have no view or are uncertain or N/A if not applicable. a) Cost of capital __________________________ b) Exchange rate ___________________________ c) Exchange rate management ____________________ d) Rate of inflation ______________________________ e) Cost of labour (unskilled) ______________________ f) Cost of labour ( skilled)________________________ g) Cost of inputs (local) _________________________ h) Cost of inputs (foreign) ________________________ i) Availability of technology ___________________________ j) Ease of access to market s _____________ ______________ k) Institutional structures ________________________________ l) Other elements (please list, then rank) ____________________ 10. How do you perceive the policies of CARICOM, collec tively, with respect to them being supportive or unsupportive of those of your government, in relation to the critical business factors below? Please indicate on a scale of -3 to +3, where -3 = strongly unsupportive, 0 = no support (neutral) and +3 = strong positive support. Respond U if you have no view or are uncertain or N/A if not applicable. a) Cost of capital __________________________ b) Exchange rate ___________________________ c) Exchange rate management ____________________ d) Rate of inflation ______________________________ e) Cost of labour ( unskilled) ______________________ f) Cost of labour (skilled) _________________________ g) Cost of inputs (local) ___________________________ h) Cost of inputs ( foreign) ________________________ i) Availability of technology ___________________________ j) Ease of access to market s _____________ ______________ k) Institutional structures ________________________________ l) Other elements (please list, then rank)_______________________ 11. Referring to the CARICOM policy areas st ated can you identif y any as having impact on the business climate in your country? Please indicate on a scale of -3 to +3, wher e -3 = strong negative impact 0 = no impact (neutral) and +3 = strong positive impact. Respond U if you have no view or are uncertain or N/A if not applicable. 1) Implementation of the CET __________________________ 2) Rules of Origin __________________________

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208 3) Trade negotiations (WTO) __________________________ 4) Trade negotiations (EU) __________________________ 5) Trade negotiations ( Other) __________________________ 6) Agriculture __________________________ 7) Fisheries __________________________ 8) Industry __________________________ 9) Services (Tourism & hospitality) __________________________ 10) Services (Professional & other) __________________________ 11) Transportation __________________________ Section III Evaluation of Environment for Investment Policy Framers outlook on Desirable Investment Climate 12. When you contemplate business future investment in your country how do you rate the importance of the following factors? Please indicate (+) = a positive impact, (0) = no impact (neutral) and (-) = a negative impact. Respond U if you have no view or are uncertain or N/A if not applicable. a) Cost of capital __________________________ b) Exchange rate __________________________ c) Exchange rate management ____________________ d) Rate of inflation ______________________________ e) Cost of labour (unskilled) _____________________ f) Cost of labour (skilled) ________________________ g) Cost of inputs (local) ___________________________ h) Cost of inputs ( foreign) __________________________ i) Availability of technology ___________________________ j) Ease of access to market s _____________ ______________ k) Institutional structures ________________________________ l) Other elements (please list, then rank)_______________________ 13. How do you perceive that the national policies you are involved in formulating will impact on the critical business factors listed below and thereby on the invest ment climate in your country? Please indicate (+) = a positive impact, (0) = no impact (neutral) and (-) = a negative impact. Respond U if you have no view or are uncertain please or N/A if not applicable. a) Cost of capital __________________________ b) Exchange rate __________________________ a) Exchange rate management ____________________ b) Rate of inflation ______________________________ c) Cost of labour ( unskilled) ______________________ d) Cost of labour (skilled) ________________________ e) Cost of inputs (local) __________________________ f) Cost of inputs ( foreign) ________________________ g) Availability of technology ___________________________ h) Ease of access to market s _____________ ______________ i) Institutional structures ________________________________ j) Other elements (please list, then rank)_____________________ Policy Framers outlook on CARICOMs influence on Desirable Investment Climate 14. How do you perceive that the coll ective CARICOM policies and their imp act on the critical business factors listed will influence the investment climate in your country? Please indicate (+) = a positive impact, (0) = no impact (neutral) and (-) = a negative impact. Respond U if you have no view or are uncertain or N/A if not applicable. a) Cost of capital __________________________

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209 b) Exchange rate __________________________ c) Exchange rate management ________________ d) Rate of inflation ___________________________ e) Cost of labour (unskilled) ______________________ f) Cost of labour (skilled) ________________________ g) Cost of inputs (local) __________________________ h) Cost of inputs (foreign) ___________________________ i) Availability of technology ___________________________ j) Ease of access to market s _____________ ______________ k) Institutional structures ________________________________ l) Other elements (please list, th en indicate)_____________________ 15. Can you identify any CARICOM policy ar ea that seems likely to influence the investment climate in your country? Please indicate (+) = a positive impact, (0) = no impact (neutral) and (-) = a negative impact. Respond U if you have no view or are uncertain or N/A if not applicable. 1) Implementation of the CET ____________________________ 2) Rules of Origin ____________________________ 3) Trade negotiations ____________________________ 4) Movement of capital ____________________________ 5) Movement of persons ____________________________ 6) Right of establishment ____________________________ 7) Agriculture ____________________________ 8) Fisheries ____________________________ 9) Industry ____________________________ 10) Services (Tourism & hospitality) ____________________________ 11) Services ( Professional & other) ____________________________ 12) Transportation ____________________________ Section IV Comparative Evaluations National policies and CARICOM policies 16. In light of your earlier responses, how would you compare the importance of the national policies you design and implement versus the CARICOM policies with respect to their influencing the business factors critical to the investment climate in your countr y? Please indicate on a scale of 1 to 4, where 1 = least important and 4 = very important. Respond U if you have no view or are uncertain or N/A if not applicable. Important Factors National Policies CARICOM Policies 1) Cost of capital 2) Exchange rate 3) Exchange rate management 4) Rate of inflation 5) Cost of labour ( unskilled) 6) Cost of labour (skilled) 7) Cost of inputs (local) 8) Cost of inputs (foreign) 9) Availability of technology 10) Ease of access to markets 11) Institutional structures 12) Other elements (please list, then rank)

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210 Overview 17. From your perspective have the CARICOM economic integration arrangements contributed to the economic gains in your country? Please indicate on a scale of 1 to 4, where 1= no impact, 2 = minimally, 3 = somewhat and 4 = considerably. Respond U if you have no view or are uncertain. ______________________ 18. From your perspective have the CARICOM economic integration arrangements contributed to increased investment in your country? Please indicate on a scale of 1 to 4, where 1 = no impact, 2 = minimally, 3 = somewhat and 4 = considerably. Respond U if your have no view or are uncertain. _______________________ 19. If you so desire, please make or add any general or specific comment(s) that would supplement your responses above and assist this analysis. ____________________________________________________________ ____________________________________________________________________________________________ ____________________________________________________________________________________________ ____________________________________________________________________________________________ ____________________________________________________________________________________________ Thank you for your participation and the time you invested in the completion of this questionnaire. John J VanSickle Ronald M Gordon University of Florida University of Florida

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211 LIST OF REFERENCES Acs, Z.J., and L. Szerb. 2007. Entrepreneursh ip, Economic Growth and Public Policy. Small Business Economics. Dordrecht: Vol. 28, Iss. 2-3:pg. 109, 14 pgs. Adams, R., P. Dee, J. Gali, and G. McGuire. 2003. The Trade and Investment Effects of Preferential Tradi ng Arrangements-Old and New Ev idence. Productivity Commission Staff Working Paper, Canberra,Australia. Alvarez, R., and G. Crespi. 2003. Determinants of technical efficiency in small firms. Small Business Economics.Dordrecht: Vol. 20. Iss 3:pg. 233. Andriamananjara, S., M.W. Schiff, and Wo rld Bank. Development Research Group. 1998. Regional groupings among microstates Worl d Bank, Development Research Group, Washington, D.C. Balassa, B.A. 1961. The theory of economic integration R.D. Irwin, Homewood, Ill. Baldwin, R.E. 1999. A Domi no Theory of Regionalism, In J. Bagwati, et al., eds. Trading Blocs : Alternative Approaches to Analyzing Preferential Trade Agreements. The MIT Press, Cambridge, Massachusetts. Barr, D., F. Breedon, and D. Miles. 2003. Life on the outside: economic conditions and prospects outside euroland. Economic Policy 18:573-613. Bayoumi, T., and B. Eichengreen. 1995. 'Is Regi onalism Simply a Diversion? Evidence from the Evolution of the EC and EFTA' Discussion Paper no 1294. Centre for Economic Policy Research, London. Benassy-Quere, A., M. Coupet, and T. Mayer. 2007. Institutional De terminants of Foreign Direct Investment. The Worl d Economy 30:764-782. Bergstrand, J.H. 1989. The generalized gravit y equation, monopolistic competition, and the factor-proportions theory in international trade. Review of Economics & Statistics 71:143. Bhagwati, J. 1999. Regionalism and Multilateralism: An Overview, In B. Jagdish, et al., eds. Trading Blocs: Alternative A pproaches to Analyzing Prefer ential Trading Arrangements. The MIT Press, Cambridge, Massachusetts. Bhagwati, J., and A. Panagariya. 1999. Preferen tial Trading Areas and Multilateralism-Strangers, Friends or Foes, In J. N. Bhagwati, et al., eds. Tradi ng Blocs: Alternative Approaches to Analyzing Preferential Trading Arrangement s. MIT Press, Cammbridge, Massachusetts. Blake, B.W. 2007. Caribbean Economic Developmen t in the Post Washington Concensus Period, Caribbean Agro-Economic Conference. Univ ersity of the West Indies, Trinidad.

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213 CARICOM Secretariat. 2006c. Progr amme 9 : External Economic and Trade Relations. Work Programme 2004 [Online]. Available by CARICOM http://www.caricom.org/search_results.jsp ?keywords=cooperation%20with%20third%20 countries&start=0&searc htype=and&menu=search (verified August 03). CARICOM Secretariat. 2006d. The Original Treaty [Online]. Available by CARICOM http://www.caricom.org/jsp/community/original_treaty.jsp?menu=community (verified August 03). CARICOM Secretariat. 2006e. The Caribbean Fr ee Trade Association (CARIFTA) [Online]. Available by CARICOM http://caricom.org/jsp/community/carifta.jsp?menu=community (verified August 03). CARICOM Secretariat. 2006f. Th e West Indies Federation [O nline]. Available by CARICOM http://caricom.org/jsp/community/west_ indies_federation.jsp?menu=community (verified August 3). CARICOM Secretariat. 2006g. Th e CARICOM Single Market and Economy (CSME) [Online]. Available by CARICOM http://www.caricom.org/jsp/single_market/single_market_index.jsp?menu=csme (verified August 03). CARICOM Secretariat. 2006h. The Revised Treaty [Online]. Available by CARICOM http://www.caricom.org/jsp/community/revised_treaty.jsp?menu=community (verified August 03). CARICOM Secretariat. 2007. Towards A Single Economy and a Single Development Vision [Online]. Available by CARICOM http://www.caricom.org/jsp/single_ market/single_economy_girvan.pdf (verified August 04). Coderre, F., A. Mathieu, and N. St-Laurent. 2004 Comparison of the qual ity of qualitative data obtained through telephone, posta l and email surveys. Intern ational Journal of Market Research 46:347(11). Cook, P. 2001. Finance and Small and Medium-S ized Enterprise in Developing Countries. Journal of Developmental Entrepreneurship 6:17. Cooper, C.A., and B.F. Massell. 1999. Toward a General Theory of Customs Unions for Developing Countries, In J. Bagwati, et al., eds. Tradi ng Blocs: Alternative Approaches to Analyzing Preferential Trade Arra ngements. The MIT Press, Cambridge, Massachusetts. Corden, W., Max,. 1970. The Efficiency of Effects of Trad e and Protection, In I. McDougall and R. H. Snape, eds. Studies in Internat ional Economics. Amsterdam, North Holland.

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219 BIOGRAPHICAL SKETCH Ronald M.Gordon was born in Guyana. He obt ained a B Sc (with honors) in chemical engineering from the University of the West Indies, St Augustine Campus. He also received an MS in food science and an MBA fr om the University of Massachus etts in Amherst, MA and an MS in international agricultural development from the University of California at Davis, CA. He had more than two decades of experience in agricultural and fisheries development in the Caribbean prior to becoming a graduate research assistant in the Food and Resource Economics Department at the University of Florida (UF) in Fall 2002. He was the recipient of a fellowship from the Center for Latin American Studies of UF as well as several field research awards for his studies and research. His in terest is in the analysis of issues pertaining to economic development, agriculture and trade, pa rticularly in a developi ng country environment.