Running Head: FDI AND ECONOMIC GROWTH 1
The Influence of Foreign Direct Investment and Economic Growth of Caribbean Economies: A
Case of Trinidad and Tobago
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FDI AND ECONOMIC GROWTH 2
The Influence of Foreign Direct Investment and Economic Growth of Caribbean Economies: A
Case of Trinidad and Tobago
The 2008/09 economic crisis impacted on the Caribbean economies more than most other
developing countries in the world. The impact was as a result of the economic policies which
these governments had been implementing for about two to three decades. The foreign direct
investment, FDI, inflows is one case in point: while Latin America and most other developing
countries recovered relatively quickly after the crisis, the economies covered in this report
continued receiving substantially less inflows way through 2011 and 2012 (Mamingi, Yearwood,
& Maynard, 2014). Because transnational corporations are responsible for a large share of
investment, exports, as well as formal employment; diminished FDI inflows tend to have a
serious impact on such a country as Trinidad and Tobago (Garcia-Fuentes, Kennedy, & Ferreira,
2016). Because Trinidad and Tobago is a small economy with significant interconnectedness
with her neighbors, the general situation in the Caribbean region is addressed as well.
Attracting Foreign Direct Investment
While seeking to attract FDI, Caribbean economies face the typical challenges of small
economies. First they have a small domestic market which is not of great interest to most
transnational corporations seeking access to local markets. In the manufacturing sector they
suffer from relative high costs in certain key inputs for manufacturing activities like transport or
energy, a situation which is also strongly related to their size and their condition as islands
(Todaro & Smith, 2014). Finally, small countries face more pressingly the challenges of
excessive specialization in one single industry. This is the case of oil and gas in Trinidad and
Tobago, or tourism in Barbados or Bahamas (Worrell, Lowe, & Naitram, 2012).
FDI AND ECONOMIC GROWTH 3
Moreover, compared to the size of their economies, the level of FDI is high. This is in
part because of the rise in FDI in extractive industries (oil and gas in Trinidad and Tobago,
bauxite in Jamaica and Guyana, gold in Suriname) Furthermore, the Pan-Caribbean market
continues to attract market-seeking investment, particularly in banking, utilities and
telecommunications (Mamingi & Borda, 2015). Finally, the Caribbean region still has some very
strong advantages in tourism and other export-oriented businesses. It is for that reason that many
firms in the Business Process Outsourcing sector are investing in the region: to make use of the
highly educated and English-speaking population that is close to the United States (Caldentey &
Titelman, 2014; Todaro & Smith, 2014).
The Contributions Made by Multinationals from the US, Europe, and Japan
It has been established that the activities of the multinational corporations have more
impact such countries as Belize as well as Trinidad and Tobago than has been the case in Chile,
Mexico, and Brazil. As a result, the implication is that some of the investment decisions which
are made in Asia, Europe, and in the United States of America tend to have significant impacts
on the economic wellbeing of the countries and the societies in the Caribbean (Williams, 2015).
This is with regard to the amount of foreign direct investment, and thus the level of
unemployment, labor participation, and even the average income per family (Bernal, 2015;
Todaro & Smith, 2014; Worrell, 2016).
Countries rich in natural resources are able to gain significantly from the rising prices of
the various commodities. This is because the investors are prompted to engage in the sectors
which deal with natural resources as there is a ready market for that. Nonetheless, it is also
noteworthy that much of the Caribbean is keenly focused on the services industries, and this is
one of the reasons why their economies suffer tremendously as a result of economic crises. For
FDI AND ECONOMIC GROWTH 4
instance, whenever there are economic constraints in the West, tourism revenues drop. This is
because people tend to have much reduced disposable income (Todaro & Smith, 2014; Vlcek,
2014).
Decline of FDI
Another notable phenomenon is that the decline in the inflow of foreign direct
investments has been more predominant in the Caribbean than is the case in any other region of
the world. As an example, the inflow of foreign direct investments into this particular region
dropped by about 54 percent in 2009, while the global average drop was 33 percent. That means
there was a difference of about 21 percentage points, and the implication is that it had to take
more time and effort to make the region recover from the financial crisis that had engulfed the
world. Studies (Garcia-Fuentes et al., 2016; Mamingi et al., 2014) have indicated that Africa,
