Dominican Republic Economy

Over the last two decades, the Dominican Republic has stood out as one of the fastest economies in the Americas – with an average real GDP growth rate of 5.4% between 1992 and 2015. GDP continues to hover at 7% a year driven largely by construction, manufacturing and tourism. On the demand side, private consumption has recently been strong, as a result of low inflation (under 1% on average in 2015), job creation, and high remittances from Dominicans living abroad.

Despite being one of the first European settlements in the Americas, Hispaniola (as the island that encompasses the Dominican Republic and Haiti is known), was largely ignored by the Spanish in early colonial days in favor of gold-rich regions on the mainland. The introduction of slave labor by the French in the 17th century turned the Haitian side into an agricultural powerhouse but the eastern side of the island languished and a small plantation economy persisted into the 19th century.

The DR’s Economy In The 20^th Century

U.S. companies began investing in sugar production in the early 20th century and the crop dominated the Dominican economy for much of the century. Those same interests came to dominate the country and, while they and the U.S. troops that came with them were politically unpopular, they helped stabilize Dominican finances and greatly improved the physical infrastructure by building roads, sanitation systems, ports, and schools.

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Sugar cane field in the DR

The rule of dictator Rafael Trujillo from 1930 to 1961 saw further improvements to the Dominican Republic infrastructure, but most of the economic benefits accrued to the dictator, his family, and his associates. Trujillo and his cronies came to own huge swaths of land and as much as 60 percent of the nation’s sugar, cement, tobacco, and shipping assets. Although the economy grew steadily during that time, roughly 6% a year in the 1950s, the unequal distribution of that growth left most Dominicans in utter poverty.

It wasn’t until the presidency of Joaquín Balaguer Ricardo (1966-78) that the country experienced a period of sustained economic growth, with the economy expanding at a rate of 8% a year in the late 1960s and early 1970s — one of the highest in the world at the time. The Balaguer administration increased spending on social services, introduced an Industrial Incentive Law to protect domestic manufacturing and to spur more import substitution industries, and promoted mining, assembly manufacturing, construction, and tourism.

In the 1980s, an international recession and low sugar prices sparked a cycle of balance-of-payments deficits and growing external debt that cooled the economy considerably. Foreign debt skyrocketed, government spending continued unabated, and inflation worsened. The country did, however, begin to diversify away from sugar and into manufacturing assembly operations that continue to play a key part in the Dominican economy. The agricultural sector also diversified with new emphases nontraditional items such as tropical fruits (particularly pineapple), citrus, and ornamental plants to the United States under the Caribbean Basin Initiative.

The DR’s Economy In The 21^st Century

The early 2000s saw another crisis (this time prompted by major bank fraud) that only began to subside under the second presidency of Leonel Fernandez beginning in 2004. With help from the IMF, Fernandez managed to turn things around until the Great Recession of 2008. The country rebounded from the global economic crisis quickly, however, and has since been on a sustained upward trajectory.

The economy of the Dominican Republic remains closely integrated with the U.S. economy; more than 50 percent of its exports go to the United States. The CAFTA-DR, a free trade agreement between the Dominican Republic, the United States and several Central American countries, has continued to facilitate economic growth and hundreds of millions of dollars are being invested in industrial free zones that offer special business and tax incentives. All of this has helped to diversify the Dominican Republic’s economy away from raw resources and toward low-end manufacturing of goods such as textiles, plastics and medical instruments.

Dominican Republic Economic Statistics