The view of the Dominican Republic from the front of our condo in Juan Dolio, DR.

Greetings  from the town of Juan Dolio in the Dominican Republic! Having traveled to the Dominican Republic on personal business, I thought it would be fun to compare and contrast developments in this country with those of other developing nations to glean whatever lessons we can from it.

The Dominican Republic

The Dominican Republic  is a Spanish speaking nation that resides on the the Eastern side of the island of Hispaniola, southeast and next-door to Cuba in the Caribbean. The western side of Hispaniola is occupied by the country of Haiti.

Until the end of the twentieth century, the Dominican Republic had an extremely difficult time politically and economically with one dictator followed by another, with a few intervening democratically-elected leaders. One almost prototypical El Jefe who ruled the Dominican Republic in the last century was Rafael Trujillo (Rafael Leónidas Trujillo Molina, 24 October 1891 – 30 May 1961). In fact, Rafael Trujillo’s nickname was El Jefe (the Chief), which is a common synonym for an Hispanic American caudillo, a strong man or dictator. Trujillo ruled off-and-on from February 1930 until his assassination in May 1961. He served first as president from 1930 to 1938, and then again from 1942 to 1952. After that, the elected presidents were merely figureheads who answered to El Jefe.

Following Trujillo in February 1963, the honest and honorable leftist Juan Bosch was elected president, but lost power to a military coup that replaced Bosch with a three-man civilian junta. However, in 1965 a pro-Bosch rebellion broke out after 19 months under the junta. Soon thereafter, U.S. President Lyndon Baines Johnson, fearing another communist takeover like in Cuba (Juan Bosch was notoriously far left, even though he denied being a communist himself), ordered U.S. Marine Corps units and the 82nd Airborne Division to invade the Dominican Republic in Operation Power Pack. This was to ensure the Dominican Republic would not become yet another communist threat just south of Florida. The U.S. forces were joined by small supporting contingents from the Organization of American States, and did not leave until supervised elections resulted in the election of Joaquín Balaguer as president.

Joaquín Balaguer began a string of presidencies that alternated between his ruthless dictatorship and popularly elected democratic leaders. Balaguer himself was a very cruel dictator, albeit not quite as cruel as Trujillo. He was Trujillo’s last puppet-president. During his terms in office, more than 11,000 Dominicans were assassinated between 1966 and 2000. In addition, in an infallible sign of fascist government, more than 300 politicians became millionaires during his “presidency”. Balaguer’s many terms in office were marked by a repression of human rights and civil liberties.The good that he did to balance these evils, however, was not inconsiderable: He mandated the construction of schools, hospitals, dams, roads, and many important buildings. Steady economic growth progressed during his rule.

In 1978 Balaguer was defeated for reelection by a wealthy rancher, Antonio Guzmán. When Balaguer handed over power to Guzmán, the occasion marked the first time an incumbent president transferred power peacefully to an elected president from a different party. Balaguer ran for the presidency again in 1982, only to be defeated by Salvador Jorge Blanco. Under Presidents Guzmán and Blanco, who both belonged to the Dominican Revolutionary Party (PRD), the Dominican Republic enjoyed a brief period when human rights and personal freedom were respected. However, beginning in 1986 Joaquín Balaguer controlled the presidency until the 2000 election of Hipólito Mejía. This control was usually effected in elections riven with voter fraud engineered to remove opposition party voters from the voter rolls. Balaguer died at age 95 in 2002.

Since Mejía’s election in 2000, democratic norms and human rights seem by and large to have been respected. The current president Danilo Medina was elected in 2012 and reelected in 2016. Although I have personally heard criticisms of Medina for pushing a constitutional amendment allowing him two consecutive terms in office, nevertheless other authoritarian tendencies of this president are really difficult to find.

Increasing civil liberties and economic freedoms seem to be paying off for the country in terms of increasing GDP per capita and GDP growth rates, as is displayed in the plot below.

Note from this plot that volatility in the growth rate has greatly moderated with less negative spikes downward since 1990, with per capita GDP growing steadily. We can tell this economic pickup is occurring coincidentally with greater economic freedom from the index of economic freedom invented and tracked by the Heritage Foundation and the Wall Street Journal. They calculate it every year for each country for which there is data as a straight arithmetic average of twelve components, each one of which varies from zero to 100. The smaller each component and the overall index is, the more the government controls the economy in the aspect measured by the component, and the less economic freedom is given to the people. The plot of this index for the Dominican Republic since 1995 when the index was created, together with a plot of GDP per capita  immediately reveals the correlation.

Like many other developing nations, the Dominican Republic has an economy that grows considerably more rapidly than those of more developed countries. This is because it is in a condition where simply adding more capital investments and labor inputs can create growth.  We can see this in the huge amount of construction going on just outside our condo. However, with a per capita GDP of close to $7,000 in constant 2011 U.S. dollars, the Dominican Republic might well be close to the point where increases in what is called “total factor” productivity will be needed for further growth. Total factor productivity is increased by investments that extend the level of technology and the skills of the workforce, increasing the scope of available products and labor productivity. We have seen evidence of this kind of activity in technology parks, and facilities offering specialized health care for foreigners,

The Heritage Foundation rated the Dominican Republic number 76 out of 180 rated countries in economic freedom, and “moderately free.” (The most free country, number one, is Hong Kong SAR. The United States is number 17.) Concerning the Dominican Republic’s economy, the Heritage Foundation assessment states,

Wide-ranging reforms have led to some progress in regulatory efficiency, enhancing the Dominican Republic’s entrepreneurial environment. Gradual economic diversification has strengthened resilience to external shocks. A relatively high degree of openness to global trade has aided the ongoing transition to a modern and competitive economic system, and modest tax rates have encouraged competitiveness.

In particular, the government has helped its economy by holding the line on government expenditures (something the U.S. government could fruitfully learn to do!), reducing the tax burden, and streamlining the burden of economic regulations. In addition, the government does a good job in protecting property rights, with the exception of the protection of intellectual property rights, which the Heritage Foundation assessment says is poor. The present top marginal tax rate for individuals is 25 percent, and the top marginal rate for corporations is 27 percent. Where the country has particular problems holding back growth is in the curse of a growing government corruption and crony-capitalism.

The Dominican Republic Compared to Other Countries

How does the Dominican Republic compare  with other countries, particularly with other Hispanic American countries? If we do a scatter plot of country positions in the economic freedom — GDP per capita plane for all countries for which there is data, and take particular notice of the Dominican Republic’s position in this plane, we get the following plot.

From the plot you can see the Dominican Republic is at that condition of economic freedom where if they continue to increase their economic freedom, they can expect their GDP per capita to begin to increase exponentially with increases in that freedom.

However, another fruitful comparison would be with other Hispanic American countries in the Carribbean, South America, Central America, and Mexico. If we repeat this exercise, but restrict our view to these Hispanic American countries, we would obtain the following plot.

It should be instructive that most of the Hispanic American countries with higher per capita GDP also have higher indices of economic freedom, with only three counterexamples. This is something our previous examinations of the histories of Indian and Mexican development in the post Lessons From The Developing World would lead us to expect. As long as the Dominican Republic continues to struggle to increase the economic freedoms of individuals and businesses, they can anticipate an increase in the material well-being of their people.

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