Before and after the Global Financial Crisis: Evaluating the Caribbean's Synchronization with Global Engines of Growth

Abstract

The Policy Research Working Paper Series disseminates the findings of work in progress to encourage the exchange of ideas about development issues. An objective of the series is to get the findings out quickly, even if the presentations are less than fully polished. The papers carry the names of the authors and should be cited accordingly. The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors. They do not necessarily represent the views of the International Bank for Reconstruction and Development/World Bank and its affiliated organizations, or those of the Executive Directors of the World Bank or the governments they represent.

Size and Sectoral Specialisation: The Asymmetric Cross‐country Impacts of the 2008 Crisis and Its Aftermath

“…An analysis of the 896 H. W. Armstrong and R. Read immediate impacts of the crisis in six small Pacific economies finds only limited direct effects on finance, tourism and remittances (Kida, 2009). The effects of the crisis and its aftermath on growth in small Caribbean economies is found to be strongly correlated with their major trading partners [the European Union (EU) and US], particularly for smaller service-oriented countries (Kouamé & Reyes, 2016). Further, although this exposure does not amplify demand shocks from these partners, the effects of such cycles tend to be persistent.…”

“…Growth volatility in small economies is therefore the result of specialisation in output and exports rather than size specifically. In the Caribbean, the growth cycles of small economies have a high degree of synchronisation with key markets in the European Union and the USA (Kouamé & Reyes, 2016).…”

“…Their initial pattern of specialisation is therefore likely to have been an important determinant of the domestic impact of the crisis. This analysis therefore follows Kouamé and Reyes (2016) and Armstrong and Read (2018) by investigating the extent to which the impact of the 2008 financial crisis can be explained by country size, openness to trade, pattern of sectoral specialisation and trade links. Simple correlation analysis is again used as a first step in examining the role of geographic and structural variables along with trade openness in determining the magnitude of the effects of the crisis and their persistence.…”