Fdi In The Caribbean Case Study

To determine whether FDI in the Caribbean is affected by catastrophic risk caused by the occurrence of a hurricane, the results of the estimation model are presented in Table 4 and Table 5. In Model (1), only the number of hurricanes and storms is ran on FDI inflows using time fixed effects. The coefficient of the number of hurricanes was negative (0.413) and statistically significant from 0. According to this, FDI/GDP would decrease as a result of a hurricane occurrence. This model does not fully explain FDI inflows so more variables are added in Model (2). The variables added were those indicated by the literature as the determinants of FDI. These include real GDP per capita, GDP growth, Inflation, trade, total reserves and infrastructure.

Both of these variables were found to be statistically indifferent from 0. Comparing the results from Model (1) to (3) and Model (4) to (6), using both country and time effects, hurricanes have no significant impact on FDI inflows, however, when time fixed effects are used, the results indicate a negative relationship. This can be explained as time effects method of estimation is used when an unexpected incidents would affect the outcome. In this case, the unexpected incident is a hurricane. Also, the occurrence of a hurricane would more vary over time rather than country because of the close proximity of the countries to each other. So if a hurricane occurs in one country there is a strong possibility that it also made landfall in numerous other

Model (7) took into consideration the impact different sectors can have on FDI used as proxies for market share as opposed to GDP growth and real GDP per capita. The agricultural sector produced a statistically significant result at 1 percent. Most countries in this region have been spending less money on the agricultural sector and most investors predominantly focus on the services and industrial sectors. Therefore, a shift of focus to the agricultural sector, could cause investment to decrease, as investors are not interested in investing in this sector even though it is expanding. In this case an increase in the value added output in agriculture would decrease FDI inflows by 0.026 percent.

The net value added of the industrial sector was also found to be statistically significant at 10 percent, where growth of one unit would increase FDI/GDP by 0.010 percent. This was anticipated as most FDI coming into the region is used in natural resources such as bauxite, mining, and the oil industry as is the case for Trinidad, Jamaica and Dominican Republic. Furthermore, the growth of the services industry was also found to be significant in the region at 1 percent. As the region is well known for its tourism and financial services, the growth of this industry would contribute to the increase of