CARIFORUM and UK EPA Study

regional value chains actively being pursued in the region, though “production integration” remains a core objective of the regional Agenda, specifically for the CARICOM States within CARIFORUM. Research has shown that one of the main reasons for the low level of integration into GVCs in Latin America and the Caribbean may stem from the “Spaghetti bowl” of Preferential Trade Agreements (PTAs) with differing rules of origin requirements. In relation to services, due to the limited number of backward linkages as compared to forward linkages in the UK services sector, given the high degree of integration and regulation, there are less opportunities for CF service suppliers to penetrate UK value chains in the actual production of services. 3. Improving productive capacities and the macroeconomic environment The data shows that while some CF partners score well on some dimensions of productive capacity as measured by the Productive Capacity Index (PCI), as well as at the aggregate level, more work needs to be done to improve the region’s level of productive capacity overall. There is a high degree of correlation between performance on the productive capacity index and GDP growth as well as export diversification. Countries that have higher levels of productive capacity are therefore in a better position to achieve the sustainable development goals. Empirical analysis conducted in this study shows that the PCI is significant and positively correlated with regional trade performance. Therefore CF countries that are unable to improve productive capacity have shown lower levels of trade performance. Different components of the Index are also relevant for different CF partners. However, the results show that human capital is a significant variable for all countries, so that with the comparatively low level of human capital formation that exists at the regional level, there is considerable room for improvement, given the observed lack of diversification in merchandise trade performance. As expected, the levels of liberalization (integration), openness, liquidity, GDP growth, and productive capacity significantly influence changes in the average volume of trade conducted by CF states.

ii.

Opportunities

1. The role of services in goods trade

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