87852 MAY 2014 • Number 142 A Future without Oil? Diversifying Options for Trinidad and Tobago Francisco Galrao Carneiro, Rohan Longmore, Marta Riveira Cazorla, and Pascal Jaupart Trinidad and Tobago (T&T) is an example of successful diversification within the oil and gas sector and the country is now a global player in the energy industry. Diversifying its asset base so that the nonresource sector can continue to grow and generate jobs once the country’s oil reserves are depleted is also an important priority for Trinidadians. With reserves of oil and gas in T&T expected to be exhausted by 2025–30, the government is focusing more and more on options for diversification. Although many countries have grown and improved their development outcomes while remaining highly dependent on natural resource rents, the obvious concern is what will be the sources of growth for the country when oil runs out? In this context,this note identifies the binding constraints and potential drivers to further economic diversification in T&T. 1 Why Is Diversification Important for T&T? There is evidence that vertical diversification has oc- curred within the energy sector. Oil production has been fol- T&T can be characterized as a dual economy. With a gross na- lowing a declining trend since the 1980s, and has been re- tional income (GNI) per capita of US$14,710 in 2012, the placed by natural gas as the dominant activity in the energy country is a high-income country, rich in natural resources, with a well-developed globally competitive oil and gas indus- sector (figure 1). In addition, growth in production of petro- try. The nonenergy sector is relatively underdeveloped, at- chemicals has mirrored growth in the production of natural tracting little investment and, to a significant extent, depends gas. T&T has become the world’s leading exporter of ammo- on government subsidies and transfers.2 T&T’s economy has nia and methanol, which, along with urea, make up the main also been historically quite volatile and particularly suscepti- petrochemical products in the country. ble to commodity price shocks. While vertical diversification is welcome, the major ques- As with most natural resource rich economies, the issue tion that confronts policy makers relates to the slow pace of of economic diversification has been extensively debated in horizontal diversification. More specifically, what could be T&T since the 1950s. This discussion has taken on a new the major impediments to further diversification in the coun- sense of urgency given recent revelations that the country’s try? Has T&T paid enough attention to the diversification of largest industry, the oil and gas industry (45 percent of its asset base (that is, its human and physical capital) and its GDP), could disappear within 15 years unless new reserves institutions? This note discusses the main determinants of are found. In conjunction with exploration efforts, the gov- export concentration in T&T and the significance of potential ernment has been aggressively pushing for answers to the drivers of diversification away from the resource sector in the question of how best to diversify the country's economic context of a country that has already successfully diversified base. vertically within the industry. 1 POVERTY REDUCTION AND ECONOMIC MANAGEMENT (PREM) NETWORK    www.worldbank.org/economicpremise Figure 1. Crude Oil and Natural Gas Production where Si is the share of industry i in total exports, and n the number of sectors in the economy. The HH index is the sum production (barrels of oil equivalent per day, in thousands) 900 of squared shares of each product in total export. A country natural gas 800 with a perfectly diversified export portfolio will have an index crude oil close to zero, whereas a country that exports only one product 700 will have a value of 1 (least diversified).3 600 Table 1 shows the average diversification performance for selected countries during 1980–2010. T&T appears to have 500 made significant progress in terms of diversification over the last three decades (its HH index did contract by more than 70 400 percent). The twin-island country has also rapidly trans- 300 formed in terms of diversification relative to other countries with similar structural characteristics. There seems to be 200 greater limitations in terms of diversification for net oil ex- porters, as the average HH index for this group of countries is 100 above the HH average for all other groups. 0 Since the end of the 1990s, T&T has ranked below the net oil exporters’ average concentration index. Also, while 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 T&T has become more diversified over the past 30 years, it Source: Central Bank of Trinidad and Tobago. has remained less diversified than the average of country groups with which it shares significant structural characteris- development The Literature as well as to reduction of on Diversification in T&T the exporters, tics.as In the average 2010, HH sector the energy for accounted index still this group for 66 percent country’s industry concentration. Using a Growth of counties is above of exports HH average thepercent and 44 of GDP, for all other while it only employed 3 of authors havedeveloped A number Methodology Diagnostic analyzed theby structure Hausmann, of the twin- groups.percent of the labor force. Most of the country’s diversifica- island economy and reported what they Rodrik and Velasco (2005), Artana et al. (2007) consider to be major tion has indeed happened within the energy sector, as shown found that the impediments most important to growth factors and development limiting as well as to reduc- inExport Table 1: figures 2 Diversification and 3. Performance tion of opportunities growth in T&T the country’s industry result from Using concentration. limited a Growth HH index human Diagnosticcapital, high macroeconomic Methodology developed by Hausmann, volatility,Rodrik and Who Are T&T’s Comparators? Country 1980 1990 2000 2010 inadequate Velasco (2005), development Artana et al. (2007) infrastructure, of found that the most im- T&T To put 0.8706 0.4597 of 0.3059 the experience 0.2480 T&T into perspective, we con- inadequate access to foreign markets, portant factors limiting growth opportunities in rising T&T result criminality, lack of innovation, corruption, and a Indonesia 0.3743 structed a group0.1305 0.0543 of comparable 0.0560 countries and developed a from limited human capital, high macroeconomic volatility, burdensome bureaucracy. 0.9414 net Saudi consolidated commodity 0.7424 exporter 0.6916 0.8377 category. Countries inadequate development of infrastructure, inadequate access Arabia that fit into this category are defined as net exporters of fuel, to foreign markets, rising criminality, lack of innovation, cor- Elias and Rojas-Suárez (2007) analyzed T&T’s World metals, and ores 0.2553 for at least 0.2168 five years 0.1957 0.2399 between 2000 and ruption, and a burdensome bureaucracy. institutions and documented poorer than expected LAC 0.3573 0.2427 0.1872 0.1816 Elias and Rojas-Suárez (2007) analyzed T&T’s in- quality-of-governance indicators. The authors Caribbean 0.5328 0.3508 0.2227 0.1607 stitutions Table 1. Export Diversification Performance claim that, and absence poorer documented in the than expected of improvements in quality-of-governance indicators. Net oil 0.3580 0.3068 0.3684 0.2691 terms of governance, the country The might not beclaim authors able HH index exporters Country tothat, in the achieve improvements absence of high sustainable in terms gross domestic of gov- product (GDP) ernance, growth rates. might the country Other authors, not in achieve be able to particularsus- Island 0.3059 19800.2286 1990 0.2652 2000 0.2429 2010 Balgobin tainable highandgrossOmar (2006), domestic found product (GDP) thatgrowththe T&T countries 0.8706 0.4597 0.3059 0.2480 development of the in rates. Other authors, private sector particular seems Balgobin andto Omar be Net oil 0.3566 0.2441 0.1516 0.1161 Indonesia 0.3743 0.1305 0.0543 0.0560 hindered by weak (2006), found that theand inefficient development of public the private sector sec- exporter institutions tor seems to that result in by be hindered administrative delays pub- weak and inefficient and Saudi Arabia Islands 0.9414 0.7424 0.8377 0.6916 unnecessary costs. lic sector institutions that result in administrative de- Source: WITS and authors’ World 0.2553 calculations. 0.2168 0.2399 0.1957 lays and unnecessary costs. How Diversified Are T&T’s Exports? LAC 0.3573 0.2427 0.1872 0.1816 The How Herfindahl-Hirschman Diversified Are T&T’s index (HH index) is Exports? Caribbean 0.5328 0.3508 0.2227 0.1607 used to measure export diversification and is one Since the end of the 1990s, T&T has ranked below ofThetheHerfindahl-Hirschman most commonly used index (HH index) proxies for is used the Net oil exporters 0.3580 0.3068 0.3684 0.2691 the net oil exporters’ average concentration index. to measure export diversification economywide level of diversification. It is and is one of the Also, Island while T&T 0.3059 countries has become more diversified 0.2286 0.2652 0.2429 most commonly calculated used proxies for the economywide as follows: over the past 30 years it has remained less level of diversification. It is calculated as follows: Net oil exporter Islands 0.3566 0.2441 0.1516 0.1161 diversified than the average of country groups with � Herfindahl-Hirschman Index = ∑��� �i , 2 which Source: shares it calculations. WITS and authors’ significant structural characteristics. In 2010, the energy sector still where Si isREDUCTION the shareAND of ECONOMIC i in total exports, industry MANAGEMENT accounted for 66 percent of exports and 44 percent 2 POVERTY (PREM) NETWORK    www.worldbank.org/economicpremise and n the number of sectors in the economy. The of GDP, while it only employed 3 percent of the HH index is the sum of squared shares of each labor force. Most of the country’s diversification product in total export. A country with a perfectly has indeed happened within the energy sector, as Figure 2. HH—Energy Sector Azerbaijan and Gabon in the latter half of the decade. The ex- 1.2 perience of T&T, although starting from a lower concentration level, appears to be rather analogous to Qatar and Oman. 1.0 Potential Diversification Drivers 0.8 This exercise adopts elements of the framework developed by 0.6 Al-Kawaz (2008) and Agosin, Alvarez, and Bravo-Ortega 0.4 (2012) to determine the potential drivers of concentration/ diversification in selected oil-producing states. Using pooled, 0.2 weighted, least squares regressions over 1991–2001, Al- 0 Kawaz found investment and higher quality institutions to have a strong and positive impact on diversification. Higher 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 inflation discourages the development of new activities. Fi- Source: WITS; authors' calculations. nally, openness to trade seems to foster diversification. Figure 3. HH—Nonenergy Sector Figure 4. Evolution of the HH Index in Selected Countries (I) 1 .35 .9 .30 .8 .25 HH—nonenergy .7 .20 .6 .15 .5 .10 .4 .3 .05 .2 0 .1 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 0 00 01 02 03 04 05 06 07 08 09 10 Source: WITS; authors' calculations. 20 20 20 20 20 20 20 20 20 20 20 2010. The list of control countries is restricted to non- United Arab Emirates Azerbaijan OECD (Organisation for Economic Co-operation and De- Bahrain Bolivia velopment) and non-European Union member countries Source: WITS. because these countries share particular institutional char- acteristics. Additionally, given the size of T&T’s economy, Figure 5. Evolution of the HH Index in Selected Countries (II) countries with a total population greater than 10 million are .9 excluded. This results in a list of 15 control group countries .8 located across different regions.4 .7 The rationale behind the creation of this comparison .6 group is to have a set of countries similar to T&T at hand so as .5 to: (i) assess whether commodity-rich countries share partic- ular characteristics in terms of diversification, and (ii) evalu- .4 ate whether specific policies have a differentiated impact be- .3 tween commodity exporters and commodity importers. .2 There appears to be a significant amount of heterogeneity .1 and volatility in the diversification experience of the countries 0 selected (figures 4 and 5). Notably, while Bahrain, Oman, and 04 06 07 08 09 10 00 01 02 03 05 20 20 20 20 20 20 20 20 20 20 20 the United Arab Emirates have successfully expanded the range of economic activities oriented toward foreign markets in Central African Republic Gabon the second half of the last decade, the level of export concentra- Oman Qatar tion has gradually increased in Bolivia and the Central African Trinidad and Tobago Republic. Some sharp diversification reversals are observed for Source: WITS. 3 POVERTY REDUCTION AND ECONOMIC MANAGEMENT (PREM) NETWORK    www.worldbank.org/economicpremise Box 1. Estimation Methodology Generalized Method of Moments estimator has been demonstrated to be more efficient and less To assess the determinants of economic diversification, this biased than the Arellano and Bond difference estimator (Kpo- exercise relies on dynamic panel Generalized Method of dar 2007). The system estimator combines lagged levels as Moments (GMM) estimations following Agosin, Alvarez, and well as lagged differences as instruments. The period dum- Bravo-Ortega (2012) and estimate equation (1): mies are treated as strictly exogenous, while all the other ex- Di,t = α + β.Di,t-1 + γ.Xi,t + ηi + dt + νi,t (1) planatory variables are considered non-endogenous. The size where Di,t is the Herfindahl-Hirschman index of export of the matrix of instruments is reduced to avoid over-instru- concentration for country i at time t, which is explained as a mentation bias, and the autoregressive model is estimated function of a matrix of explanatory variables Xi,t, the lagged with robust standard errors. value of the Herfindahl-Hirschman index of export concen- tration Di,t-1, a country fixed effect ηi, a time dummy dt, and Data νi,t an error term. The set of potential drivers analyzed is similar to those from The index of concentration is lagged to account for the Agosin, Alvarez, and Bravo-Ortega (2012) and Al-Kawaz persistence of the export structure over time, and the coun- (2008). The main difference is that Al-Kawaz uses the square try fixed effects account for the influence of unobserved value of per capita income and the square value of invest- time-invariant country-specific characteristics that may ex- ment to represent the effect of the early and later stage of plain diversification patterns across countries. In addition, economic growth process on diversification. Instead, this has the use of fixed effects mitigates the potential impact of hav- been replaced by GDP per capita expressed in logarithm to ing a nonrandom sample. Some countries are more likely to capture the nonlinear impact of economic development. Ad- have gaps in their data due to an unobservable effect, and ditionally, this exercise uses a much larger data set covering this is captured to some extent by the fixed effect (Wooldridge many countries (1980–2010). Supplementary to the set of 2010, 488). variables used here, Agosin, Alvarez, and Bravo-Ortega For estimation purposes, 1980–2010 is divided into six (2012) also look at the effect of economic distance on con- subperiods of five years. The average of all variables includ- centration. In addition, besides using the HH index, they also ed in the estimation is computed for each period t. This al- test the robustness of their results with two other measures lows elimination of the influence of business cycles on the of concentration: the Gini index and the Theil indicator. results as well as minimization of the potential for attenua- The set of potential drivers in this exercise is divided into tion bias stemming from measurement errors in the data. three main categories: economic reforms (trade openness and Equation (1) is estimated with the GMM system estima- access to finance), structural factors (country population, hu- tor of Arellano and Bond to solve the econometric problems man capital, and quality of institutions) and macroeconomic caused by the presence of the lagged dependent variable in variables (real exchange rate, inflation, net FDI inflows, terms the set of the right-hand-side variables. The GMM system of trade, and investment as a share in GDP). Source: Authors’ compilation. Similarly, Agosin, Alvarez, and Bravo-Ortega (2012) em- diversified. This could be an indication that foreign investors pirically estimate the determinants of export diversification tend to develop new industries instead of pooling their re- using a large data set covering 161 countries over 1962– sources in sectors already oriented toward international mar- 2000. Their results suggest that greater trade openness induc- kets. Terms of trade shocks appear to be associated with a con- es higher specialization. Additionally, some of the results sug- centration of the export base, suggesting that relative price gest real exchange rate volatility has a positive effect on variations are accompanied by a reallocation of factors of pro- concentration, whereas overvaluation has no significant ef- duction toward the sectors where profitability has increased. fect on concentration. Human capital accumulation is found In addition, an interaction term between terms of trade and to be positively associated with diversification. Moreover, human capital included in our model is significant and nega- while positive terms of trade shocks tend to increase export tive, suggesting that the concentrating effect of terms of trade concentration, the effect appears to be less important for shocks is less important for those countries with higher levels countries endowed with higher stocks of human capital. of human capital. The level of financial development has a negative and sig- Has Foreign Direct Investment Contributed nificant coefficient. By reducing liquidity constraints, greater to Greater Export Diversification in T&T? access to credit may indeed stimulate export activities. Coun- The findings suggest that access to finance, terms of trade tries where investors face fewer barriers to credit are more di- shocks, and foreign direct investment (FDI) inflows have sig- versified. Real exchange rate variations also appear to have a nificant effects on diversification. Other things being equal, strong impact on diversification patterns. Currency real ap- countries receiving more direct investments tend to be more preciations are found to translate into a higher concentration 4 POVERTY REDUCTION AND ECONOMIC MANAGEMENT (PREM) NETWORK    www.worldbank.org/economicpremise of the export base. This is consistent with the argument that ic sectors in the economy. Not having a developed nonenergy a real appreciation reduces investment profitability. tradable sector will probably continue to limit future growth Institutional quality and a commodity exporter dummy due to lack of externalities in production, lack of forward and were used to test for a conditional effect of resource wealth. backward links, shortages of learning by doing, and lack of en- One may expect that countries with stronger institutions trepreneurship. Consequently, the country has taken mea- control rent-seeking behaviors associated with mineral wealth sures to stimulate the non-resource-based economy. better and more effectively reorient resource rents toward Over the last decades, the government of T&T has taken other sectors of the economy. However, the coefficient esti- numerous measures directly aimed at encouraging FDI in- mate turned out to be insignificant. flows into the energy and nonenergy sectors. FDI was also im- To address the concern that, in island countries, FDI in- plicitly considered a strategic means of diversification because flows may have a different effect than in other countries, a it was believed FDI would also act as a source of revenue for dummy for island nations was interacted with FDI inflows. investments in physical and human capital, which the coun- While the interacted term is not significant, all the other de- try needed to support the development of other sectors. The pendent variables remained significant and kept the same economy maintained strong tax incentives (bilateral invest- sign, suggesting that the effect of FDI on diversification does ment agreements, double taxation treaties, and reciprocal not differ in island countries. regulatory agencies arrangements) and supported the imple- GMM system estimates with standardized variables are mentation of free trade zones (FTZs) to facilitate export di- also applied, which enables ranking of the diversification de- versification. The aim was to use these initiatives to overcome terminants by order of magnitude. The results show that real obstacles and distortions in the rest of the country and even- exchange rate variations have the largest effects on concentra- tually generate forward links to the development of manufac- tion patterns. In fact, a 1 standard deviation increase in real turing industries outside the energy sector. The government exchange rate depreciation leads to a 1.8 standard deviation has also tried to actively promote foreign investments and es- decrease in concentration. FDI is the determinant with the second largest potential impact on diversification. A 1 standard deviation increase in Box 2. Has T&T Been Suffering from “Dutch Disease”? FDI inflows is associated with a 10.7 percent increase in diver- In the case of T&T, it is not actually knowing whether the sification. The list of determinants with the largest potential country has suffered from Dutch disease, but the extent to impact on diversification is followed by access to finance in which the phenomenon has been harming the country’s de- third place, and terms of trade shocks in fourth place. Addi- velopment. Indeed, Mohammed, Moya, and Sookram tionally, a 1 standard deviation increase in access to finance (2010) claim that in T&T, Dutch disease is not a cyclical and terms of trade leads to an 8.5 percent decrease and a 7.0 phenomenon, but a permanent characteristic of the econo- my, given the historical preponderance of oil and gas in total percent increase in export concentration, respectively. exports over the last three decades. Artana et al. (2007) ar- T&T is characterized by relatively large and volatile gue that the Dutch disease phenomenon accounts for only capital inflows compared to other countries in the Latin some of the reasons why T&T has failed to significantly de- America and Caribbean (LAC) region. FDI inflows averaged velop its nonenergy sector. Artana et al. find several other 6.6 percent of GDP during 1988–2011, above the LAC av- factors that have limited the expansion of economic activi- ties in line with the findings presented here. First, evidence erage of 2.4 percent of GDP over the same period. In the shows that natural resource abundance has affected public 1980s and 1990s, T&T was able to maintain its position as policies. Fiscal policy has been rather pro-cyclical in past a top performer in terms of the amount of investments it years, and even though prudent fiscal management mecha- was successful in attracting. In the 2000s, however, the nisms have been created lately, the credibility of the author- number of countries showing very attractive profiles for ities has suffered, exacerbating the macroeconomic risk FDI as well as the diversity of profitable sectors for FDI sig- perceived by business leaders. Second, the unsatisfactory quality of education appears to be another binding con- nificantly increased. Additionally, FDI inflows in T&T were straint in their study. Insufficient innovation and technologi- severely impacted in 2009 and 2010 by the global financial cal readiness outside the energy sector are listed as further crisis. impediments. Infrastructure bottlenecks also constrain di- FDI in T&T has been mostly concentrated in the energy versification. Lastly, the rising criminality observed in recent sector, particularly in the oil sector first, and, at a later stage, in years also appears to discourage entrepreneurship. Source: Authors’ compilation. the natural gas projects following deregulation of the sector. Note: Dutch disease is a term that broadly refers to the harmful consequenc- This transition helped the economy to diversify its energy sec- es of large increases in a country’s income. Although the disease is generally associated with a natural resource discovery, it can occur from any tor, but not the nonenergy sector (ECLAC 2003). Later, the developments that result in a large inflow of foreign currency, including a country succeeded in attracting new investments in other sec- sharp surge in natural resource prices or foreign assistance (Ebrahim-Zadeh 2003). tors, but this only slightly expanded the numbers of econom- 5 POVERTY REDUCTION AND ECONOMIC MANAGEMENT (PREM) NETWORK    www.worldbank.org/economicpremise tablished the Trinidad and Tobago Country Branding and In- trade agreement initiatives, because this would increase ac- vestment Promotion in charge of the administration of exist- cess to the international markets that its local and foreign pro- ing industrial parks. ducers enjoy. Improving the functioning of the domestic fi- Given the high ratio of FDI to GDP in T&T, evidence nancial markets could also facilitate the creation of new of the lack of diversification outside the energy sector sug- business activities and generate employment opportunities. gests that T&T has not been able to fully maximize the po- While Trinidadian education is already recognized inter- tential benefits of the large FDI it has received. As Moham- nationally for its good quality, there is scope to improve it fur- med, Moya, and Sookram (2010) indicate, the additional ther. Secondary and tertiary education as well as research and benefits that a foreign investor can bring depend on wheth- development are important for maximizing FDI’s full bene- er that investor generates spillovers to the rest of the econo- fits, and the authorities may consider investing more in these my through employment, technology, or innovation. This, domains. Expanding the knowledge base of the economy at the same time, is strongly associated with the type of ac- would facilitate the development of new activities and also tivity of the investing company and how it connects to oth- make the country more attractive to foreign investors. er producers. The findings of Mohammed, Moya, and T&T’s technological capacity needs improvement. An Sookram (2010) also show that FTZs have stronger spill- additional challenge for the country would be to find a way over effects in countries where the local technology can be for domestic and foreign private sector entrepreneurs to par- complementary to the FDI, and weaker effects in countries ticipate in this effort and also agree to transfer technological with a wide technological gap. This may be a partial expla- knowledge. Similarly, bilateral trade and investments treaties, nation as to why FDI inflows have not substantially fostered as well as institutional reforms, are policy options the govern- diversification outside the energy sector in T&T. The coun- ment of T&T could seize to help reduce the concentration of try’s technological and human capital are indeed still below the country’s economy. its potential outside of the oil and gas sectors. Linking FDI Finally, a resource-rich economy that diversifies its eco- incentives to human and technological capital develop- nomic structure, its products, and its partners—and that be- ment, as well as finding various ways of engaging the do- comes less reliant on its most abundant endowment—is also mestic and foreign private sector in this mission, would en- less sensitive to macroeconomic shocks transmitted through able T&T to better seize the benefits of FDI in terms of large fluctuations in commodity prices. And with resource economic diversification. extraction highly capital-intensive, diversification creates ad- ditional sources of employment for the labor force. Indeed, Conclusion and Policy Implications recent research (World Bank 2013) finds a positive associa- T&T is successfully diversifying its energy sector. With this, tion between rising economic diversification and rising per the country has converged toward the world average level of capita income for countries with per capita incomes of up to export concentration for 1980–2011, and T&T is now US$20,000. Beyond that level, economies tend to reconcen- known as a global player in the oil and gas industry, instead of trate, though high-income countries do not reach the concen- being recognized solely as an oil-based economy. Neverthe- trations usually found in low-income countries. less, further diversification away from the oil and gas sectors Acknowledgment remains an important objective because it would reduce its economic vulnerability to commodity price shocks and help The authors would like to thank Bernard Drum, Norbert secure output growth for many years after the full depletion Fiess, Auguste Tano Kouame, Denis Medvedev, Friederike of the countries’ limited oil and gas resources. Koehler-Geib, Christine Richaud, Giorgio Valentini, Caro- While this analysis highlights openness to FDI and access line Vagneron, and Sophie Sirtaine. to finance as fundamental determinants of economic diversi- About the Authors fication, the available evidence suggests that FDI to T&T has not led to significant dynamism and structural transforma- Francisco Galrao Carneiro, Rohan Longomore, and Marta Rivei- tion. The key question for the authorities is thus, how to tran- ra Cazorla are Lead Economic and Sector Leader, Economist and sition from reinforced resource-based activities to greater Consultant, respectively, in the Poverty Reduction and Econom- nonenergy diversification and new specialization in the high- ic Management Network of the World Bank’s Latin America value segments of energy activities? and Caribbean Region. Pascal Jaupart is a PhD candidate in Findings presented here suggest that T&T should aim to economics and geography at the London School of Economics. attract more FDI in the nonenergy sector and take measures Notes to increase FDI-induced spillovers in the energy sector. Based on the findings of the literature on FDI determinants, this 1. This Economic Premise note draws on “Toward Economic could be achieved by participating more actively in regional Diversification in Trinidad and Tobago,” a paper published in 6 POVERTY REDUCTION AND ECONOMIC MANAGEMENT (PREM) NETWORK    www.worldbank.org/economicpremise April 2014 in the World Bank Working Paper Series, and will Baum, C. F. 2006. An Introduction to Modern Econometrics Using appear as well later this year in a special edition by the Univer- Stata. Stata Press. sity of West Indies with a selection of the papers presented in Blonigen, B. A., and J. Piger. 2011. “Determinants of Foreign Direct Investments.” NBER Working Paper 16704. a 2012 conference to commemorate the 50th anniversary of Central Bank of Trinidad and Tobago. 2012. Economic Statistics. the independence of Trinidad & Tobago. ECLAC (Economic Commission for Latin America and the Carib- 2. Between 1994 and 2008, the country’s output grew at an bean). 2003. The Impact of FDI on Patterns of Specialization in the impressive average rate of 7.1 percent. Yet, most of this Caribbean. Ebrahim-Zadeh, C. 2003. “Dutch Disease: Too Much Wealth Man- growth can be attributed to the performance of the oil and aged Unwisely.” Finance and Development 40 (1): 2. gas sectors, supported by high energy prices. Over the last Elías, C., F. Jaramillo, and L. Rojas-Suárez. 2006. “Introduction.” decade, average annual GDP growth in the petroleum sector In From Growth to Prosperity: Policy Perspectives for Trinidad averaged 9.7 percent. The nonenergy sector, on the other and Tobago, ed. L. Rojas-Suárez and C. Elías. Inter-American hand, exhibited much slower growth rates, with a decade Development Bank. mean of 3.6 percent. Habib, M., and L. Zurawicki. 2002. “Corruption and Foreign Direct Investment.” Journal of International Business Studies 33 3. Observations for the HH index are extracted from the (2): 291–307. World Integrated Trade Solution Database (WITS) and are Hausmann, R., D. Rodrik, and A. Velasco. 2005. “Growth Diag- calculated with annual country export data recorded in the nostics.” John F. Kennedy School of Government, Harvard SITC Revision 2 COMTRADE database. Two-digit level data University. are used. Imbs, J., and R. Wacziarg. 2003. “Stages of Diversification.” The American Economic Review 93 (1): 63–86. 4. The net commodity exporter countries’ control group con- IMF (International Monetary Fund). 2011 and 2012. Article IV sidered was integrated by: United Arab Emirates, Brunei Da- Staff Reports for Trinidad and Tobago. russalam, Guinea, Oman, Azerbaijan, Bhutan, Kuwait, Papua ———. 2011. World Economic Outlook. New Guinea, Bahrain, Central African Republic, Mongolia, Kpodar, K. 2007. Manuel d’initiation a Stata. Centre d’Etudes et Qatar, Bolivia, Gabon, Namibia, and Trinidad and Tobago. de Recherche sur le Développement International (CERDI), Clermont-Ferrand. 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They are produced by the Poverty Reduction and Economic Management (PREM) Network Vice-Presidency of the World Bank. The views expressed here are those of the authors and do not necessarily reflect those of the World Bank. The notes are available at: www.worldbank.org/economicpremise. 7 POVERTY REDUCTION AND ECONOMIC MANAGEMENT (PREM) NETWORK    www.worldbank.org/economicpremise