People walk by a waterfront in St. George's, Grenada, which has been a member of the Caribbean Community (CARICOM) since 1974 (photo: iStock/oriredmouse)

By Ding Ding and Inci Otker

February 4, 2020

The Caribbean economies have long recognized the value of working together. Improving regional integration—for instance, through more intraregional trade and policy coordination—can help the region’s small-size economies build greater resilience and scale, as well as enhance bargaining power on the global stage.

According to the latest IMF research, further liberalizing trade and labor mobility in the region can generate significant economic benefits—potentially over 7 percent of the region’s GDP in 2018.

While policymakers of the Caribbean Community (CARICOM) remain committed to further integration and progress has been made, the implementation of integration initiatives and policies toward the goal of a regional economic union has been slow and needs to be accelerated. 

Work in progress

Compared to other well-integrated regions, like the ECCU and EU, the Caribbean lags. The integration indices, which measure the degree of intraregional economic and institutional integration, suggest that Caribbean community’s integration has proceeded in several waves, with periods of integration followed by slowdowns in progress, including in removing remaining tariff and non-tariff barriers to trade and constraints on intraregional labor movement.

Financial integration has proceeded faster with tightly-interconnected financial systems across the region, but capital markets remain underdeveloped and fragmented. Harmonizing economic and structural policies to support a single economic space is still work in progress, with lacking harmonization and coordination of investment codes, tax incentives, and macroeconomic policies.

Pain points

Why has progress in regional integration been slow for the Caribbean? A combination of institutional, political economy, and structural factors underlie the slower implementation of integration policies. The lack of a regional body with powers and accountability that can help transform community decisions to binding laws in individual jurisdictions is a key impediment. A decision-making process based on unanimity principle, where each member retains its sovereign authority, also hinders progress. 

In the absence of a facilitating regional architecture, cooperation must rely on well-aligned national interests and shared goals, but national incentives do not seem to be well-aligned for integration, with its potential benefits perceived by some as uncertain, potentially uneven, and only materializing over a long horizon.

Differing export/production structures and income and development levels make it challenging to harmonize economic and structural policies around well-integrated policy frameworks. Some regional authorities attribute the slow pace of implementation to a “crisis of will,” as much as to wasteful duplication and slow progress in harmonizing legal and institutional frameworks and to binding resource/capacity gaps. 

A worthwhile goal

A 25-percent reduction in non-tariff barriers and trade costs within CARICOM and vis-à-vis non-CARICOM trade partners can boost trade and improve welfare gain for all members—at about $6 billion, or 7.6 percent of the region’s GDP in 2018. It can also help restructure economies from contracting to expanding sectors, resulting in a net employment gain across the region.