Question

Small open developing economies, such as those in the Caribbean, are perplexed by the challenges they encounter on account of inadequate resources. A typical Government strategy is investment by invitation - having MNCs fill the resource-deficit gap. Unfortunately, governments compounded the challenge by the misallocating these same resources intended for development. Discuss.Small open developing economies, such as those in the Caribbean, are perplexed by the challenges they encounter on account of inadequate resources. A typical Government strategy is investment by invitation - having MNCs fill the resource-deficit gap. Unfortunately, governments compounded the challenge by the misallocating these same resources intended for development. Discuss. ( 50 marks)

Answer 1

Caribbean countries mostly depend upon the travel and tourism industry to generate foreign reserve along with exports od specific commodities such as fisheries. Besides, Caribbean countries lack sufficient resources to develop their economy that can facilitate growth, create employment and bring prosperity to their people. In the pursuit of it, these countries invite MNC enterprises to come and invest as FDI and reap the benefits for themselves as well as for the local people. It brings funds to the government as some of the MNCs come to the specific countries. Here, the government has two options. The first option is to spend these revenues upon those activities that can create revenue in the future. For example, setting up small scale or medium scale enterprises or bringing mechanization to the farm sector to increase productivity or build educational institutions that could produce quality manpower to generate revenue for the country in future. The second option is to spend money on non--development program, such as spending on the salaries of the government employees, spending upon the function of the government and other non-development programs. Unfortunately, the government has opted for the second option to spend most of the money as resources . It has provided short term gains or political mileage, but it has hurt the overall development. Further, poor regulatory framework in these nations, also increased scope of economic rent, corruption and exploitation by the MNCs. As a result, foreign investments came, but it could not be used for the development of the economy or help common people get jobs. It made economy to suffer and still heavily reliant upon travel and tourism.