Governance and growth in the Caribbean small states – evidence from global indicators

Abstract

The paper assesses the state of governance in thirteen Caribbean Small States (CSS) by comparing these states among themselves, utilising global indicators relating to political governance, economic growth and GDP per capita. The main finding is that the governance scores and the GDP per capita in these states differ considerably, but there is a positive correlation between the two variables. On the other hand, the governance scores in the CSS tend to be negatively correlated with economic growth. These correlation patterns are similar globally. The paper delves deeper into the correlation between governance and economic growth and postulates that economic growth is related to improvements in governance and not the level of governance, arguing that a given governance improvement effort is likely to have a higher effect in a country with a lower level of governance. This assumption is termed “diminishing marginal governance effect”. The test of this assumption indicates that economic growth does indeed relates to improvements in governance, keeping the stage of development constant.