Engine of Growth?: The Caribbean Private Sector Needs More Than an Oil Change

Dec 2016
The performance of the private sector is crucial for a country's economic growth. Thus, this report revisits the theme of low Caribbean growth, viewed through a macroeconomic lens in the previous "Sclerosis" report, but focuses on a microeconomic perspective: Why is the business sector not functioning well as the engine of that growth? We argue that fine-tuning that engine, as it were, will take more than an oil change. The central hypothesis is that the Caribbean private sector is falling behind because its policy environment hinders rather than promotes dynamic, innovative, and export-oriented businesses. Structural policies that target overall improvements in the environment in which firms operate may have greater returns than just firm- or sector-level interventions in improving the performance of the private sector, and hence overall economic growth. This is counterintuitive for many Caribbean policymakers and commentators who often focus on the needs of existing large firms (foreign or domestically owned) and discuss which sector or industry should be promoted next given the stagnation of the existing sectors.