One of the fascinating aspects of our activities along the border is the chance to work in both Haiti and the Dominican Republic. This island of Hispaniola (or Quesqueya as the Haitians prefer) is less than half the size of Florida and yet is divided between two very different worlds. Although neither country is well-off by US or European standards, the Dominican Republic is doing dramatically better than its neighbor. Whereas the Dominican Republic’s economy is based on exports and tourism, most Haitians work in subsistence agriculture. Over much of the last forty years, the Dominican Republic has had one of the fastest growing economies in the hemisphere while Haiti has had one of the slowest. In real estate, brokers say that the value of a property is based on three factors: location, location, and location. Yet somehow, Haiti’s location has not helped its value.
The International Monetary Fund took on this challenging question in a working paper entitled, Growth in the Dominican Republic and Haiti: Why has the Grass Been Greener on One Side of Hispaniola?. This working paper, prepared by Laura Jaramillo and Cemile Sancak and distributed in March 2007 tries to answer the question using the IMF’s standard toolkit. As befits IMF economist, they quickly discounted the factors that Jared Diamond had raised in his excellent book, Collapse, to explain the difference such as the relative amounts of rainfall and population density. They also largely discount the impacts of each country’s different history stating that prior to the US occupation of the island in the early 20th century; both countries had equally weak institutions. They admit that by 1960, there was already a divergence in income between the two countries, but a far smaller one than exists today.
The paper then focuses on the specific economic variables for both countries to try and determine their impact on growth for each country between 1960 and 2005. They focused on two factors: institutional and macroeconomic stability. It is noteworthy that institutional stability is far more important than institutional legitimacy—the relative institutional stability of the coup years in Haiti (1993-1996) counted for more than the relatively chaotic years surrounding the return of President Aristide and the first election of President Preval. On the Dominican side, the authors consider the Dominican institutions to have slowly strengthened throughout the period. For macroeconomic stability, the authors found that both Haiti and the Dominican Republic were quite similar did better than the rest of Latin America in both the 1970s and 1980s. The marked difference came in the 1990s when the Dominican Republic and the rest of Latin America tamed their economies and Haiti did not.
The authors then looked at a variety of other factors that could contribute to economic growth: secondary school enrollment, availability of credit, monetary policy, and trade openness. In all of these areas, the Dominican Republic made great progress and Haiti did little. Again the differences were most noted during the 1990s.
The authors conclude:
The panel regression and case study approach allow us to conclude that policy decisions since 1960 have played a central role in the growth divergence between Haiti and the Dominican Republic. In general, structural policies have been the key determinant of growth in both the Dominican Republic and Haiti, followed by political stability and stabilization policies. In particular, we find that the Dominican Republic has consistently outperformed Haiti and LAC in terms of implementation of structural measures, stabilization policies, as well as political stability. Meanwhile, Haiti has lagged the region in implementing structural policies, while being subject to numerous political shocks that have severely affected its growth performance. (p23)
I found this paper to be fascinating in that the authors look at the situation in the two countries from a very distinct perspective. I disagree with their conclusion that structural policies were more important than political stability—unstable institutions or those with questionable legitimacy have great difficulty in implementing structural policies. I would argue that Haiti’s instability have blocked its institutions from implementing structural reforms.
In an upcoming entry, I will look at the history of the two countries and how that has led to the distinctive cultural and economic differences.