The great Caribbean divergence: colonial economic structure and the emergence of tax havens in the ‘British West Indies’

Most jurisdictions formerly ruled from London as the British West Indies (BWI) are unimportant for offshore tax planning and offshore money creation, despite sharing traits conventionally associated with tax havens. Why have only some former BWI colonies become attractive locations for the main offshore activties while most others have not? We argue that soil fertility ultimately explainsthis variance. Settlers created plantation economies on islands with good soils and maritime economies on islands with bad soils. Plantation economies were profitable enough for income taxes. Maritime economies relied on subsistence farming and fishing, therefore lacking the required tax base. Plantation economies, moreover, experienced the horizontal mobilization of racialized laborers, whereas maritime economies were shaped by patronclient relationships. Plantation economies, therefore, democratized earlier than maritime economies, where white oligarchies prevailed. When the Suez crisis increased demandfor offshore activities, the maritime economies thus combined no income taxes with white supremacy, conveying political stability to Western professionals and asset holders. Hence, offshore activities grew faster in maritime than inplantation economies during the 1960s, a divergence that has persisted because of agglomeration effects. We use Comparative Historical Analysis, combining statistical matching with process tracing, to probe the plausibility of our causal sequential argument.