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The Economic and Political Costs of Diversification as a Way Out of a Recession: The Case of Trinidad and Tobago

  • Jeetendra KhadanEmail author
  • Inder J. Ruprah
Chapter

Abstract

After Trinidad and Tobago having experienced a lost decade and facing another lost decade, the question of diversification as a way out of the recession is once again at the forefront of policy discussions following the recent oil price decline. In this chapter, we review the policies and their costs of the period 1986–1991, when Trinidad and Tobago last faced a recession derived from an oil price drop and simulate the economic costs of similar policies, particularly of an exchange rate devaluation, today. We argue that diversification should not be the policy objective but an exchange rate adjustment and institutional strengthening to reduce the oil curse. The chapter uses the framework of a hydrocarbon-dependent and ethnically diverse country, as is Trinidad and Tobago, on the above discussions and explains why there is currently policy inertia, as political rationality dominates economic rationality.

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Copyright information

© The Author(s) 2019

Authors and Affiliations

  1. 1.Inter-American Development BankWashington, DCUSA
  2. 2.Independent Economics ConsultantWashington, DCUSA

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