The Impact Of International Trade On Jamaica's Economic Growth

Most developing countries have embarked on trade liberalization regimes with the optimism of reaping dynamic and static gains from international trade.The perception of an increase in growth of exports and ultimately growth through free trade has not materialized for many developing economies.It is postulated that Jamaica has been a statistic to this failed expectation,as the country liberalized its market with the hope of achieving growth;however,the experience of the country has reflected an inverse reaction from international trade liberalization.Jamaica is a small developing island located in North America;the nation has a high degree of openness to trade and is very trade dependent.However,its trade dependence is on imported final consumption goods and services,which restrict the growth of the economy.The country has exhibited an extended period of anemic economic performance dating back to the 1970 s,and local production became open to increased competition from imports.The surge of cheaper imports resulted in an underperforming economy,as local industries output reduced,the economy loses its ability to expand and create employment.Therefore,many persons within Jamaica believes that international trade has done more harm than good for the economy,but the necessary empirical research to determine this claim was not investigated to the best of my knowledge.Although,there has been an exhaustive catalog of empirical studies done on the impact of international trade on economic performances,literature focused mainly on mechanized economies and developing countries in Asia and Africa.The unavailability of the literature on developing countries such as Jamaica is lacking.On that premise,this research aims to prove if there exist a causal correlational between Jamaica's declining economy and international trade.Accordingly,this paper aims to contribute to filling the gap of limited research on Jamaica's trade and economic performance with empirical analysis.The research covered the period 1962~2015 and used the Gross Domestic Product(GDP)as the response variable to represent economic growth along with the following independent variables such as aggregate imports and exports as the trade variables,gross capital formation,government spending,household consumption,inflation and exchange rate.The methods used in this research paper are in the form of a qualitative approach and quantitative approach.The qualitative aspect focused on discussing the trade structure showing the lack of diversity in Jamaica's trade,and the effects of imports on the economy's performance.The current trade policies and trade agreements were analyzed in relation to their contribution towards the economy's performance;as well as the challenges,which Jamaica's export sector encounters.The quantitative component of the study utilized the Restricted Vector Auto Regressive(VAR)model to determine the causal relationship between the economic growth and independent variables.In addition,the Ordinary Least Square Model was employed to determine the change in the economic growth deriving from the change in the explanatory variables.The findings concluded that there is a positive relationship between exports and GDP growth,but the effect was relatively small which was expected due to the limited export structure that consists of mainly traditional goods.Conversely,a negative relationship was found between imports and Jamaica's GDP with the effects being significant on the economy's security.Concluding from the findings of the research it was proved that Jamaica had not experienced the gains it had hoped for from trade,but instead has compromised its growth potential.International trade has caused the economy to be eroded by the surge of imports within the market that is causing domestic producers output to be reduced thereby contributing less to the growth of the economy.For the country to improve and realize tremendous gains from international trade the government should review current trade policies which represent a leakage of income from the economy and embark on an export growth-led strategy to diversify the export portfolio and boost the economy.