Three essays in Caribbean political economy

Abstract

Economic literature on regional development is mostly concerned with Asia, Europe, Africa, or Latin America. Few studies have focused on the Caribbean, despite the region having unique characteristics. The distinct history, demographics, geography, and size of the region require specific focus. This dissertation aims to fill this intellectual gap by analyzing various aspects of the region related to development, international trade, and central banking. The objective is to shed light on the position and evolution of Caribbean countries in the international economic order, and to offer insights for the potential of long-run development in the region. The following dissertation is organized into three chapters. In Chapter 1, I argue that the transition out of slavery is vital for contemporary development in the Caribbean. Specifically, I investigate the long-term economic consequences of compensation payments made to slave owners during the abolition of slavery in the 19th-century Caribbean. These payments, calculated based on slave prices influenced by local market conditions and distances to exporting slave markets, disproportionately benefited plantation economies that relied on extractive practices. While intended to facilitate the transition to free labor, compensation entrenched plantation systems, preserved elite dominance, and hindered structural economic transformation. Using historical data, I exploit the variation in compensation per slave amounts determined by distance to slave markets with an instrumental variables approach. I find that higher compensation per slave payments causes significantly lower GDP per capita in 2019 for 28 Caribbean territories. Mediation analysis reveals that approximately one-third of this negative effect operates through institutional persistence, as compensation perpetuated extractive institutions and conflict between elites and much of the population. The results also carry broader implications for modern debates on reparations and institutional reform, underscoring the enduring economic consequences of historical policies. Chapter 2 explores Arthur Bloomfield's, an American money-doctor, mission to the Caribbean Islands and is co-authored with Guy Numa. Money-doctors played a crucial role in establishing and advising central banks in underdeveloped countries in the 20th century. However, the Bretton Woods order transformed the doctors' prescriptions after the second world war. Arthur Bloomfield was a part of this "new generation" who attempted to equip central banks with wide-ranging policy tools in contrast to the rigid instruments proposed by the previous generation of experts. Bloomfield's assignment to the British West Indies in 1960-1961 is important because it is an example of the change in vision of US foreign monetary policy. A significant characteristic of the new tradition was to let the environment of the country or region determine the exact approach of central banking. Therefore, the political and economic conditions of the West Indies, and the efforts to achieve regional integration and gain independence, were a principal consideration for Bloomfield and his advice for the region. In Chapter 3, I develop a North-South growth model that integrates balance-of-payments constrained growth (BPCG) theory with insights from Arthur Lewis and Ragnar Nurkse. While BPCG models emphasize income elasticities of trade as key drivers of uneven development, Lewis and Nurkse highlight the role of domestic sector productivity in shaping long-term growth. I extend the BPCG framework to show that low internal productivity in the South weakens income elasticities and terms-of-trade, which hampers the prospects of convergence with the North. Using empirical estimates from 1985–2019, I demonstrate that elasticity ratios—determined by domestic productivity—are a critical factor in economic divergence. The findings suggest that improving internal productivity is essential for sustained growth and reducing income disparities between the North and South. The model can help explain the shortcomings of mass tourism in driving economic convergence for Caribbean islands.