Financial Liberalisation and Economic Growth in the Selected Caribbean Countries

The Caribbean countries have over the last two decades implemented polices aimed at liberalising their financial systems especially the capital accounts and exchange controls, mostly as part of economic stabilisation and structural adjustment programmes. In recent times, there has been an acceleration for the process to accommodate the creation of the CARICOM Single Market and Economy (CSME). This paper attempts to ascertain the effect of the financial liberalisation process on economic growth in a select group of Caribbean countries. The methodology involves including a financial liberalisation indicator variable, previously developed by Greenidge (2006), in a standard growth regression. The impact of the liberalisation variable is evaluated within a single equation cointegration framework using dynamic OLS. The evidence suggests that financial liberalisation led to faster growth in Barbados and Jamaica but had no effect in Trinidad and Tobago. However, the positive growth influences in both countries waned and the equilibrium level of output either declined (Barbados) or was unaffected (Jamaica).