Abstract
The Dominican Republic and Haiti share the island of Hispaniola and are broadly similar in terms of geography and historical institutions, yet their growth performance has diverged remarkably. The countries had the same per capita real GDP in 1960, but, by 2005, the Dominican Republic's per capita real GDP had tripled, whereas that of Haiti had halved. Drawing on the growth literature, this paper explains this divergence through a combined approach that includes a panel regression to study growth determinants across a broad group of countries, and a case study framework to better understand the specific policy decisions and external conditions that have shaped economic outcomes in the Dominican Republic and Haiti. This paper finds that initial conditions cannot fully explain the growth divergence, but rather policy decisions have played a central role in the growth trends of the two countries.
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Notes
Haiti is about half the size of the Dominican Republic, but has roughly the same population.
Looking at GDP growth by sector in Haiti and Dominican Republic over the period 1960–2000 reveals that performance of the primary sector did not drive overall growth performance in either country. In the Dominican Republic, the primary sector explains about 12.5 percent of the total average growth rate, whereas the secondary and tertiary sectors explain 32.5 and 55 percent, respectively. Similarly, in Haiti, the primary sector explains less than 10 percent of the total average growth rate, whereas the secondary and tertiary sectors explain about 45 percent each.
Appendix I provides a chronology of political events for both the Dominican Republic and Haiti.
U.S. expansion into the Caribbean Basin—at a time when the United States was pursuing the construction of the Panama canal—was supported by the Monroe Doctrine, originally intended to keep European nations out of Latin America, and Theodore Roosevelt's corollary to this doctrine, which stated that the United States had a moral mandate to enforce “proper” behavior among Latin American countries.
In 1960, life expectancy at birth was 44 years in Haiti compared with 54 years in the Dominican Republic. The under-5 mortality rate per thousand children was 253 in Haiti compared with 149 in the Dominican Republic. The adult illiteracy rate above age 15 (data available for 1970) was 78 percent in Haiti and only 33 percent in the Dominican Republic.
The capital stock data were constructed using aggregate investment figures. We use a perpetual inventory method to compute capital stocks, with a share of capital income in national output of 0.4 (different values do not alter the conclusions). We do not control for capacity utilization or quality of human capital, due to data limitations.
See Appendix II for details on definitions and sources.
See Appendix III for the list of countries included in the panel regression.
The Polity IV database provides a unified polity scale that ranges from +10 (strongly democratic regime) to –10 (strongly autocratic regime) on an annual basis for all countries between 1800 and 2004.
For completeness, we also estimate the model directly using the polity scale from the Polity IV database. The interpretation of this measure goes beyond political instability and focuses on the effect of democracy (or autocracy) on growth by taking into account the direction of regime change as well as its magnitude.
Since 1960, Haiti has experienced numerous regime changes, including following the fraudulent elections of Papa Doc (1961); the death of Papa Doc (1971); the freeing of political prisoners and loosening of control over the press by Baby Doc (1977); the departure of Baby Doc (1986); failed elections and coups d'état (1988–91); return of Aristide (1994); the dissolving of Parliament (1999); and irregular elections (2000). Regime changes in the Dominican Republic have been few, especially since 1970, and include the death of Trujillo (1961); coup and civil war (1962–63); Balaguer's defeat in the elections (1978); and Balaguer's agreement to cut his term short following rigged elections (1994). See Appendix I.
See Eichengreen and others (1995), Kaminsky and Reinhart (1999), and Herrera and Garcia (1999). Sensitivity analysis indicated that the panel regression results are largely robust to the choice of weighting scheme.
Until 1979, the central bank law stipulated that the amount of currency issued had to be fully covered by foreign reserves in order to preserve the exchange rate parity.
Both period intervals yield similar results; the coefficients have identical signs and are broadly of the same order of magnitude; however, the significance of these coefficients is lower for the 10-year estimation largely due to lower degrees of freedom.
The model is also estimated by replacing our measure of political instability with the polity scale from the Polity IV database, as discussed in footnote 11. This measure has the expected positive sign (not reported in Table 2); however, it is significant neither for 5- nor 10-year intervals.
The increase in trade openness is explained by improvements in exports arising from greater trade benefits to the U.S. market, as the Caribbean Basin Initiative came into effect in 1983, and by the approval of the 1983 Free Trade Zone Law that provided incentives for export industries, including 20-year tax exemptions.
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Additional information
*Laura Jaramillo and Cemile Sancak are economists in the IMF's Western Hemisphere and Fiscal Affairs Departments, respectively. The authors would like to thank Guy Meredith, Jeromin Zettelmeyer, and Andy Wolfe for their encouragement and support. We also thank Dan Holmes, Juan Climent, Chris Towe, Luis Cubeddu, and participants at the Western Hemisphere Department seminar and growth workshop for their useful comments. Volodymyr Tulin provided valuable research assistance.
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Jaramillo, L., Sancak, C. Why Has the Grass Been Greener on One Side of Hispaniola? A Comparative Growth Analysis of the Dominican Republic and Haiti. IMF Econ Rev 56, 323–349 (2009). https://doi.org/10.1057/imfsp.2008.40
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DOI: https://doi.org/10.1057/imfsp.2008.40