The Commonwealth Caribbean is often considered an archipelago of tax havens. Despite sharing attributes conventionally associated with tax havens, however, only a few Caribbean jurisdictions with a (post-)colonial relationship to the United Kingdom have become important exporters of financial services. Why have so few jurisdictions of the Commonwealth Caribbean attracted foreign capital? We argue that tax havenry ultimately resulted from an island’s agricultural suitability. Whereas British
settlers created plantation economies on islands with good soils, they created maritime economies on islands with bad soils. Plantation economies provided enough revenue potential for the imposition of income taxes by the colonial administration. In contrast, maritime economies focused on subsistence fishing and farming. Hence, colonial officials did not bother to introduce income taxes. At the same time, the horizontal mobilization of racialized laborers caused plantation economies to transition to responsible government earlier than maritime economies, which remained under the control of white oligarchies. When the decolonization of Africa created money panics among colonial elites, the maritime economies thus combined no income taxes with white supremacy, conveying political stability to asset holders fleeing newly independent states. As a result, the financial sectors of maritime economies grew faster than those of the plantation economies over the course of the 1960s. We combine event history and synthetic difference-in-difference analyses with comparative case studies to test our argument. Our results suggest that the effect of democracy on foreign investment depends on the prevalence among foreign investors of racist biases against those empowered.