Economic Development in the Dominican Republic - Statistics Project Example

Economic Development in The Dominican Republic

Introduction

Over the last two decades, the economy of the Dominican Republic has experienced an outstanding growth that has seen it emerge as one of the fastest growing economies of the Americas. A World Bank report (2016) recently reported that the country’s average GDP grew at a rate of 5.4 percent between the years 1992 and 2014, and an equivalent GDP growth of about 7 percent between 2014 and 2015. Among the factors that have been integral to this remarkable growth are tourism, construction and manufacturing sectors. Additionally, improved consumption and low inflation rates in the recent past, together with improved job creation and diaspora remittances have also been crucial to the said turnaround. However, despite the recorded improvements, the country remains a middle-income economy with significant imbalances in income distribution, employment inequalities, weak fiscal policies, poor business environment, corruption, exclusion and discrimination, among others that have impeded sustainable economic development. Central to this paper is the extent to which these factors have shaped the country’s growth pattern over the years, alongside possible action steps capable of delivering better economic conditions for the country.

Brief overview of the country’s economic performance

The economic state of the DR during the mid-period of the past century was rather weak, with a GDP per capita of below $1000. Through steady growth, the country’s economy eventually attained middle-income status in 2011, a performance that stood well above that of most countries within the region. Presently, DR is the second largest economy in Central America and the Caribbean. The rise however, was not that smooth as it was forced to different economic growth models following devastating economic shocks, internally and externally, often adjusting its production structure to align with emerging trends within the global economy. According to an ILO background paper, the once predominantly an agricultural export dependent country, it slowly shifted to import substitution industrial policies, then finally to an aggressive export stance accompanied by structural reforms that allowed it to avail incentives to such sectors as tourism (Pg. 2).

Following the country’s expansion of its garment exports and its acquired title as the most preferred tourist destination within the region, the 1990’s saw a sustained GDP growth for 11 consecutive years, until the banking crisis of 2003-04 emerged. The preferential access the country had to the US garment market coupled with foreign remittances resulting from nearly ten percent of its population stationed abroad ensured sustained income, hence growth of its economy. Nonetheless, the impact of the 2003-04 and 2008-09 economic crises saw an increase of aggressive competition against its garments, resulting in massive slump in its manufacturing jobs. The country however proved resilient by bouncing back to a sustained 9 percent annual GDP growth following the banking crisis, propelled majorly by expansion of construction, commerce and telecommunication sectors. The shift to telecommunication sector, according to the ILO report, accounted for 16 percent of the country’s GDP as at 2011, contrary to a mere 4.6 percent back in 2000.

Dominican Republic GDP real growth rate, 1980-2011 (%)

Graph courtesy of ILO Background Paper, 2013

The quick recovery realized after the 2008-09 crisis is attributable to its diversification of income sources. However, the export sector remains stagnant even as imports increase, leading to deficits in the country’s current account. Furthermore, the country continues to experience increase in non-traditional imports, with export basket remaining poorly diversified and the manufacturing sector highly uncompetitive in the world stage. Challenges that mire the country’s effort towards industrial upgrading still persist. The social pillars necessary to support transition into a middle-income economy, in which the major drivers are innovation and capabilities of the local industries continue to lag behind. The result is that the country faces numerous challenges, in myriad sectors, that increasingly hamper its road to a high-income level country.

Economic policy

The country’s economic policies tend to focus more on improving its attractiveness to direct foreign investment. The major approaches to this goal include infrastructure development, establishment of favorable trade agreements as well as favorable tax agreements. Additionally, the country lays key attention to structural issues such as fiscal, education and energy sector reforms. Noteworthy though is that the inherent challenges resulting from the slow economic growth realized since 2011 continue to render vague the discourse of determining specific targets. According to the USA International Business Publication, recently, the country realized an increased in its public spending catalyzed by the recent electoral cycle, increased investment in the energy (electricity) sector and increased capital expenditure (pg. 154), yet the resulting fiscal consolidation measures remain unproductive.

The country’s budgets have continually reiterated the need to push for a fiscal deficit reduction to as low as 2 percent, yet with the sustained constant expenditure on health, education, energy, tourism, promotion of small and medium enterprises, among others hamper the attainment of such. In addition, key to the country’s economic policies is a recent enactment of tax increases, aimed at raising more revenues and hence reduction in the budget deficit is at its nascent stages. While a 2 percent deficit is more desirable, the fact that the country’s public institutions are weak coupled with the immense risks of growth emanating from internal and external factors implies that the country might be forced to settle for a 3.5-4 percent deficit. Such might be costly in the long term as the public debt ratio might increase to about 40 percent.

The attention allocated to infrastructure and the energy sector implies that the country still faces a recurrent risk to its finances. For instance, the electricity sector faces poor input coverage that might persist since the government is yet to adopt the necessary adjustments to match up tariffs with fluctuations in oil prices. Finally, the country recently adopted an inflation-targeting discourse based on a gradually declining inflation targets geared towards a 4 percent rate since 2015. The downside with this is that the country’s central bank focusses only on a single target, making it highly susceptible exchange rate volatilities.

Public finances. Graph courtesy of EIU

Contemporary challenges to sustainable growth

Despite being the largest economy in the Caribbean region with a GDP nearly three times that of Guatemala, its economy has been slowing since 2011. A study by the United States Agency for International Development established that having bounced back after the 2008-09 recession; the country’s economic began to slow down in 2011, registering a growth rate of 33.9 percent in 2012 and a projected rate of 3.8 percent in 2013, down from 4.5 percent in 2011. Despite the fact that the country enjoys diversified income sources, from tourism to manufacturing, mining to agriculture, proceeds from the same have failed to aid in the realization of good economic conditions in the country. Unemployment remains high, poverty soared from 32 percent to 50 percent between 2000 and 2004, before falling to 41 percent in 2013, income inequality is persistent, exclusion and discrimination, crime and violence, violence against women, corruption, unreliable electricity, poor business environment, poor quality education are some of the inherent challenges faced in the country’s economic realm.

Unemployment in the Dominican Republic remains characteristically high within the active population. In fact, the country’s unemployment rate is the highest among the Caribbean nations, despite it being the fastest growing economy in the region. The USA International Business Publication places the country’s unemployment rate as at 2010 at 14.4 percent and in 2011 at 14.6 percent, figures that are nearly double the region’s average of 7.6 percent. The same publication also reports that gender gaps also exist in unemployment. Between the years 2003 and 2011, the average unemployment rate stood at 9.9 percent among the male population and a whopping 25.3 percent among the female population (Pg. 83). However, while the unemployment rates eased slightly in 2013 to 13 percent, youth unemployment remained characteristically high, at 30 percent, much to the detriment of the economy.

Source: Quandl

As is always the case with most economies of the world, high unemployment rates tend to lead to other social problems such as high rates of crime, and DR is no exception to this. Sadler and Kim, while assessing crime rates based on intentional homicide rates as the basic indicator report that in 2010, the murder rate in the DR was 25 per 100,000 people, a high figure compared to 7 per 100000 in Haiti and 13 per 100000 in Nicaragua (pg. 10). The figure however indicates that homicide cases have nearly doubled in the republic between the years 2002 and 2012, a phenomena that makes the country rank at fourth position among Caribbean countries. The country also emerges as one with the highest gang operation cases within Latin America, with 48.9 percent of inhabitants reporting the presence of gangs within their neighborhoods. A related vice is drug trafficking, with reports indicating that between the years 2005 and 2012, 40.6 percent of crimes reported involved drug trafficking. Furthermore, the period spanning 2008-2012, drug seizures more than tripled. On one hand, this may indicate an enhanced effort by law enforcers to track illegal trades, but on the other, the extent to which such flourish within the country, exploiting such factors as weak systems, poverty and the strategic location of the country that provides for the Caribbean countries.

Though prominently hailed as moving in the right direction, the high growth rates is but a mask to entrenched economic inequalities within the Dominican society. At national level, the economic prospects of the country seem promising, being a relatively wealthy country in a region where most are poor, having recorded an impressive 5.4 percent annual average economic growth for the past 48 years, at least prior to the 2008-09 recession. Official reports, however, lay bare the paradoxical nature of this perceived growth. In the face of the popularized advances in the economic wellbeing of the country, level of extreme poverty within the population remains high. A study by Sadler and Kim reveals that the country has high income disparities, marked by the wealthiest 20 percent of the population controlling 53 percent the country’s gross income and the poorest 40 percent accounting for a mere 14 percent of the gross income. Consequently, poverty levels within the country as at 2011 stood at 40.4 percent compared to 32 percent in 2000.

Gosh, Bussolo and Freije reveals in their analysis that the Dominican Republic’s growth incidence curve has a positive slope, implying that individuals at the bottom of the distribution have lower income gains compared to those at the middle or at the top (Pg. 88). The situation worsens in urban areas. The poor, trapped in their situation, remain poor with no hope of ever escaping. Even within the Latin American context, the country’s income inequality is characterized by gaping divisions, given that while other countries saw a 41 percent improvement in transition chances to better income groups over the past decade, the figure in the DR remained at 2 percent. The most appalling side to this is the fact that those defined as poor in the country are judged as having the means with which they can generate higher incomes. While the reasons behind this observation could be different, the major contributing factor appears to be the polarization between the rich and the poor that accords little, if any chance for the people to realize economic mobility, resulting in a vicious cycle of poverty.

Poor business environment is another factor that affect economic development in the Dominican Republic. The country, according to the United States Agency for International Development, ranks 137 out of 185 global economies on the ease of starting a business enterprise (Pg. 10). With an economic freedom score of 60.2 in 2012, hence 89th freest of the 161 analyzed, and 18th out of 29 in South, Central and Caribbean countries, its performance in as far as supportive business environment is concerned is poor. The major investment challenges are as shown in the chart below.

World Bank investment climate survey, 2005

Global competitiveness report, 2012-2013

Electricity

Corruption

Corruption

Inefficient government bureaucracy

Crime

Access to financing

Macroeconomic instability

Taxes

Uncertain policies and regulation

Inadequately educated workforce

Anticompetitive informal policies

Crime

Access to and cost of financing

Restrictive labor regulations

Ranks courtesy of World Bank, World Economic Forum

Exclusion and discrimination is another potent factor that presents immense challenges to the inclusive economic growth of the country. According to Sansavior and Scholar, the Dominican Republic, being a country where policies of development are shaped by cultural or national inclusion discourses, economic and social exclusion principles remain engraved in the society, often manifesting in the form of racialize differences (Pg. 211). In fact, undocumented Haitians living in DR regularly complain of living in fear of possible deportation, of being victims of police mistreatment, exploitation by employers or having had to face numerous constraints when attempting to register their startup businesses. Numerous research persons have widely raised concerns that Haitians or Dominican of Haitian decent are highly susceptible to discrimination and often have unequal access to numerous social services.

In addition to racial discrimination, the country also experiences unequal treatment directed towards the poor, individuals with disabilities, women, members of the gay, lesbian, transgender and bisexual members of the community. For instance, sizeable proportions of the country’s population, nearly 12 percent suffers some form of disability, has limited access to education since even most of the facilities present in the institution of learning are inaccessible to, say the physically impaired, hence are not actively engaged in n income generating activity. Additionally, a greater percentage of children with disability as per a UNESCO study of 2012 are not in school. Thus, the vulnerable groups only play a marginal role in the Dominican society. The country’s education quality also faces inherent fundamental challenges. In fact, the republic ranks 143rd in terms of the quality of primary education and 137th on the overall performance of the education system, out of the ranked 144 countries of the world (USA Internal Business Publication, 86).

Finally, entrenched gender violence within the Dominican society is another element that despite the presence of limited information regarding its scope, presents a great challenge to the economic development of the country. Unconfirmed sources estimate that nearly 9 percent of women in the republic between the ages of 15 and 49 experience physical violence and a further 10 percent experience sexual violence. Within the Caribbean region, prevention of gender-based violence remains an impoverished area, often receiving minimal funds from the government kitty compared other criminal investigations. Sigal and Denmark note that despite the concerted efforts seen all over the world towards reducing cases of gender-based violence within societies, achievement of cultural competence remains an elusive discourse (Pg. 250). The Dominican Republic also emerges as a hotspot for sex trafficking and forced labor, with the victims originating from different countries of the world, majorly the Americas and Europe.

Remedies and key areas of policy action

In order to curb the effects that the mentioned constraints have on the economic development of the country as well as on the overall wellbeing of the population, structural and policy changes are necessary. For instance, addressing income inequality would require the republic to adjust its tax system to target the rich, invest in projects that confer increased access to social services by the poor, improve the quality and access of education to be as comprehensively inclusive as possible and to focus on creating more incentives for the establishment of an inclusive environment. Additionally, the country should focus on creating more jobs domestically, as opposed to outsourcing its production services to other countries. In so doing, the engraved unemployment would drastically reduce, leading to the establishment of a relatively equal society.

Secondly, the in order to manage the discrimination and exclusion practices definitive of the country’s society, special discourses such as means of identifying structural discrimination, measures and indicators of social and economic needs, among others should be in place. Such a process, among other things, should lay emphasis on the importance of development tickling down to the poor. Achievement of such would require addressing the social and economic needs of the poorest section of the population, accurately measure the success of any such milestones and adopt measures that actually reduce income gaps within the population. Next is the issue of crime. While most of the criminal occurrences in the republic resemble those experienced in developed countries such as the US, the Dominican one incorporates the poverty aspect. The first approach to addressing the issue would be to address poverty, unemployment and income inequality.

Despite the fact that the country has one of the poorest business environments in the Caribbean region, measures undertaken by the present government would go a long way in transforming the country’s business environment. Such measures include availing farmers and small and medium businesses with incentives, enhancing the quality of education to establish quality workforce, enactment of liberal rules to foreign investment, increased protection of intellectual property, among others would go a long way in transforming the country’s business environment. Finally, corruption, a vice that is multifaceted, with discernible negative impacts on human development and human rights, economic impacts in terms of bribes to bypass red tapes, security impacts through alienation of citizens, among others requires formidable redress mechanisms. Among the possible a actions include leveraging international conventions to commit in combating the vice, adopting anti-corruption provisions as well as extensive support to independent civil society organizations that act as watchdogs.

Conclusion

While most countries in the Caribbean continue to experience positive economic growth, certain obstacles exist within their institutions and society that hamper progress towards achieving high-income economic status. The Dominic republic, for instance, has been experiencing remarkable growth for a greater part of this century, yet is plagued with high income inequalities, high levels of poverty, poor quality of education, exclusion and discrimination based on race, gender, sex orientation, etc., poor business environment, poor education standards, among others. The collective effects of these factors have ensured that a greater proportion of the country’s populace languish in poverty with limited access to basic social services. While the present government has tried to put in place measures aimed at addressing the social and economic issues emanating from the same, more in terms of pragmatic structural adjustments is necessary. The reported economic development should not be a preserve of the society’s elite, but ought to reflect the overall status of the entire population.