Independence But Not Quite: Dominican Republic And Economic Dependency On America

Introduction to Caribbean Studies

Independence but not quite: Dominican Republic and Economic Dependency on America

March 14, 2012

Introduction

The Dominican Republic is an island located in the Greater Antilles archipelago in the Caribbean region and is the second largest Caribbean country, right after Cuba. It is a country full of rich minerals, arable land, forests and ample climate; yet, the people are poor and live under extreme poverty conditions. Today in the Dominican Republic, 21 % of the nation is living under $1 a day, 65% do not have access to clean water and 25% do not have electricity. As levels of unemployment continue to rise, Dominican families endure hardship to obtain the basic needs to survive, such as nutrition, education and shelter. The continuation of malnutrition, lack of health care services, water supply and sanitation affect the Dominicans significantly. What went wrong? This paper will give a historical context of the economy, and its relevance. From this account, apparent issues are brought forth to explain the current economic dependency Dominican Republic faces. The issues that are addressed in this paper are the core/peripheral dependency relationship between Dominican Republic and the United States, the rise of international migration, and the relationship between Dominican Republic and Haiti. After addressing these concerns, the paper will focus on regional integration as an effective and viable tool to relieve Dominican Republic from economic dependency.

Overview of Dominican's economy

After World War II, as the economies of the Caribbean countries stagnated, governments needed to jump in and take responsibility to improve the economic development of its country. During this time up until early 1960s, the development of Dominican's economy was based on agricultural exports. Throughout this period, export earnings for cacao and coffee went from $RD5 million to $RD32 million, and from $RD3.6 million to $RD22.5 million respectively (Bray, 1984, p.222). From this emerged several branches of the rural petty bourgeoisie, who began to diversify their production and growing new crops. Around 1960s Dominican Republic implemented Import Substitution Industrialization (ISI) as a strategy to escape the world division of labor that surfaced in the 19th century. Rafael Leónidas Trujillo Molina, the President at that time, was heavily involved in the development of the economy. Trujillo brought in industries that consisted of infrastructure materials, garments, and food processing (Bray, 1984, p.224). It became evident that the state began to neglect the agricultural sector, hence affecting the rural people and began to heavily import machinery for their infant industries. This resulted in a reduction of agriculture output from 26% to 17% (Black, 1986, p.247).

The assassination of Trujillo caused Dominican Republic to face political and economic stagnation. In the late 1960s, although ISI was still being implemented, we see the involvement of the United States, as the state opened its country to foreign direct investment (FDI). What led to the acceptance of FDI was lack of public revenue. There was a flow of foreign investment in 'mining, sugar, tourism, cattle ranching, communications and finance' (Bray, 1984, p.226). Another period for the development of the economy was in the early 1970s, where the economy took on an export led approach due to a domestic narrow market. Within a year, the GNP increased from 10.7% to 11.7% (Bray, 1984, p.226). The little growth produced during this time only widened the gap between the rich and the poor, making the rich richer and the poor poorer. On account of the political stagnation that occurred, the state failed to oversee the ongoing economic concerns during this period. During the agriculture export period, 60% of the labor force was participating (Metz, 2001, p.126). The majority of the population worked in the rural areas, therefore the production of agriculture produced employment. Employment allows the people to be able to participate and widen the domestic market, which in turn would help boost the successful implementation of ISI. Due to this oversight, the state opened its doors to foreign investment and as a consequence preferential treatment shifted. FDI created a triangle alliance amongst the US, government and the domestic class nonetheless the US had more power and control.

Economic Dependency on the US

Dependency theory argues that developing countries will remain stagnant and backwards if they rely on developed countries to develop. The relationship between the core and the periphery in the world economy is uneven as the latter provides the raw materials and core countries produce manufactured goods and sell them back to the periphery. This is an exploitive relationship as the developing countries rely on developed countries for manufactured goods and foreign investment (Clark, 2008, p.630).

Trade and Foreign Investment

As Dominican Republic opened itself up to foreign investment, markets were flooded by US corporations and suppliers. By the mid 1980s, there were about 125 US corporations in Dominican Republic, all located within the tax-free zones (Black, 1986, p.250). Sugar is one of the major commodities that Dominican Republic exports to the US. Thus, Dominican's growth depends on the 'size of its sugar quota in the US market' (Black, 1986, p.253). In regards to sugar, the US does not solely purchase their imports from one country, they also bought it from Cuba. After the Cuban Revolution, embargoes were set up and the US stopped buying sugar from Cuba. This was a relief for Dominican Republic as now they were exporting about 85% of their sugar to the US. Yet in 1982, 'the Reagan Administrations instituted a new system of duties and quotas to restrict sugar importations,' due to protesting from US sugar farmers (Black, 1986, p.253). Dominican Republic's development is at stake, as it is economically dependent on foreign markets and investments, and there is no guarantee for sufficient and stable growth. In order for Dominican Republic to develop, it needs to expand (Clark, 2008, p.645). When such dependence is present, foreign affairs are given priority, whereas the population's need is neglected in areas such as social services and welfare. Dependent development does not allow space for domestic entrepreneurship and small business, as well as subsistence farming. As more and more foreign ideas and products flood the Dominican