Free trade zones, liberalization, remittances, and tourism, for what? Jobless growth in the Dominican Republic

Abstract

Purpose

The Dominican trade deficit represents almost 16 per cent of its gross domestic product (GDP) and is insufficiently counteracted by tourism and remittances; not even a high devaluation closed the imbalance. Eighty per cent of the exports are from free trade zones. These facts reflect their low domestic entrepreneurial capacity. The purpose of this study is to critically evaluate the Dominican economic model.

Design/methodology/approach

The author motivates the discussion with descriptive statistics and then applies multiple time-series regressions at the macro level and at the industry level.

Findings

The attraction of foreign firms appears to substitute, and not complement, the building of local capacity. Regressions show that a GDP growth of 5 per cent does not decrease the high unemployment rate.

Originality/value

Using new Okun’s equations, it is concluded that sectors dominated by local producers and improvements in the trade balance better impact the unemployment. These findings challenge conventional wisdom that characterizes the Dominican economy as a “successful story”.

Citation

Caraballo-Cueto, J. (2016), "Free trade zones, liberalization, remittances, and tourism, for what? Jobless growth in the Dominican Republic", International Journal of Development Issues, Vol. 15 No. 2, pp. 181-200. https://doi.org/10.1108/IJDI-03-2016-0023