Transcript The Hatian/Dominican Republic Economies

NS4540
Winter Term 2016
Haiti/Dominican Republic
Economic Comparison
Overview
• Aleksander Laszek, Why is Haiti Poorer than Dominican
Republic, in Leszek Balcerowicz and Andrzei Rzonca,
eds, Puzzles of Economic Growth, World Bank 2015
• Two countries interesting because of many similarities
• Share the same island
• Until 1950 history of both countries ran a similar course
• Protracted power struggles
• Frequent periods of domestic instability
• In 1950 GDP per capita almost identical, but 50 years later
• Haiti has many characteristics of a failed state
• Dominican Republic has an income per head almost five times
that of Haiti
2
Conditions in Haiti and DR
3
Pace of Economic Growth I
• Initial conditions in 1950
• Per capita incomes very similar
• Both countries were ethnically homogenous and
• Had no advanced industry
• Some difference in agriculture
• Haitian farms far smaller than plantations prevailing in DR
• Weather conditions very similar
• Technical and social infrastructure similar
• In previous years both countries had been occupied by
the United States
• Both emerged from this this period with
• a network of roads,
• trained army, and
• constitutions written in Washington
4
Pace of Economic Growth II
• Structure of both economies similar
• Agricultural countries
• Exporters of coffee, sugar, sisal or cocoa
• Politically in 1950
• Dominican Republic under the Trujillo dictatorship, while
• Haiti undergoing a period of power struggles that ended in the
mid-1950s with Papa Doc.
• Despite all similarities the paths soon diverged.
• From 1950 on for the next half century
• The Dominican Republic GDP per capita rose at an average
annual rate of 2.62%, while
• Haiti’s fell at the rate of -0.56%
• After 50 years the ratio in per capita incomes between the
two countries changed from 1:1 to 1:4.5 in favor of the
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Dominican Republic
Pace of Economic Growth III
• Both countries’ economic growth rates fluctuated heavily
throughout this period
• In some years Haiti developed faster, but except for a
short period at the end of the 1980s, DR steadily posted
higher average growth.
• Although in mid 1970s growth in both countries started
to decelerate sharply
• by the mid-1980s DR was on a recovery path, while
• Haiti embarked on a downward spiral
• During 1990s growth in DR picked up steadily while
• Trend in Haiti changed only in the mid-1990s but
remained negative (declines in GDP per capita were
increasingly smaller)
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Per Capita GDP Comparison
7
Per Capita Income
8
Pace of Economic Growth IV
• Both countries experienced numerous shocks and GDP
per capita breakdowns
• Yet Haiti’s overall performance cannot be explained by
any single growth slump
• It results from persistently lower growth in that country
over many years
• One exception is the 1991-94 slump after which Haiti’s
GDP per capita having hovered around $1,000 for 40
years, dropped to approximately $750 dollars
• Even if this did not occur and Haiti had continued to post
near zero growth rates until the end of the 1990s, in 2001
Haiti would stall have been 3.5 times poorer than DR
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Causes of Differences in Growth I
• Growth accounting analysis
• Have to omit the 1950s due to lack of data for Haiti, and
• 1990s when Haiti’s economy collapsed
• In the entire 1961-90 period increase in capital was the
key driver in DR
• 1.78% or nearly three-fourths of overall growth
• increase in working age population (0.56%),
• an increase in human capital (0.36%) and
• a marginal decline in efficiency (0.33)
• Also in Haiti capital made largest positive contribution to
growth (1.01%)
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Causes of Differences in Growth II
• Still even in combination with an increase in human
capital (0.44%) it could not outweigh
• a massive decline in productivity (-1.39%) and
• the shrinking size of the working age population (-0.4%).
• In the first decade alone (60s)
• All the components made a positive contribution to DR growth
• In Haiti all the contributions except human capital were negative
• In the 1970s and 1980s the stock of capital in both
countries was rising
• Period with petrodollars in global markets and partial
opening of both countries made borrowing abroad easier
• In 1980s both countries experienced significant
productivity slumps
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Growth Accounting
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Causes of Differences in Growth III
• From the onset DR performed substantially better in
terms of educational level
• In DR the average length of education in 1960 was 2.7 years – in
Haiti 0.8 years
• By 2000 DR up to 4.9 years – Haiti 2.8 years
• By all measures, quality of education much better in DR
• Shortcomings of education in Haiti were compounded by
the Brain Drain
• In 2000 three-fourths of Haitians with a degree had emigrated to
the U.S.
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Emigration to US by Education
14
Causes of Differences in Growth IV
• Investment
• Growth accounting highlights an increase in the capital
stock as one of the most important factors responsible
for growth in the DR
• Already in the early 1960s, DR investment per capita was
double the figure in Haiti
• In subsequent years the gap continued to widen
• In both countries private investment accounted for
approximately three-fourths of total investment
• Most violent changes in investment levels are related to
• Sanctions imposed on a turbulent Haiti in the early 90s and
• American intervention in the Dominican Republic in 1965
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Investment Patterns I
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Investment Patterns II
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Output Patterns
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Investment Patterns III
• Both Haiti and DR had a similar road network in 1950
• In the late 1950s the infrastructure of the DR was gradually
developed under Trujillo
• Later in the 1960s and early 1970s there was another period of
expansion after which the road network stabilized
• During this time virtually no road development in Haiti
• May have been due to the weakness of the Hattian
government
• which failed to construct an adequate road network, and
facilitate private sector investment in infrastructure
• For infrastructure in general, differences in the
investment rate often attributed to differences in the legal
system and property right protection
• During the period under consideration the Dominican Republic
scored significantly better than Haiti
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Legal System and Property Rights
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Political Stability I
• While level of investment explains to a great extent DR
growth, GDP slumps observed in Haiti far more difficult
to interpret
• What seems of key importance is political stability
• One measure, reflecting the Polity IV index gives good
results for Haiti
• Does not refer directly to stability but to freedom in a
given country (10 = full democracy; -10 totalitarianism)
• Looking at the frequency and scale of system changes
can see how unstable Haiti has been
• Since gaining independence in the 19 century both
countries have experienced long periods of power
struggles and permanent political turmoil
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Political Stability II
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Political Stability III
• In DR the situation changed in the 20th century
• The American occupation followed by the long rule of
Trujillo gave the country a degree of stability – with brutal
oppression
• Simultaneously he foundations of domestic infrastructure
were laid – roads, schools, development of the sugar
industry
• After Trujillo’s death in 1961 period of disruption began
• With election of Balaguer in 1966 DR enjoyed relatively
political stability – authoritarian
• Conducive to foreign investment, tourists and closer ties
with the global economy
• Trends strengthened toward the end of the 1970s, to
consolidate in the 1990s when he withdrew from politics 23
Political Stability IV
• Duvalier regime in Haiti much less stale
• Papa Doc regime 12 years against Trujillo’s 31
• Focused entirely on brutally suppressing any sign of
opposition
• Baby Doc – weak politician incapable of control
• State structures disintegrated and anarchy mounted
finally erupting after Baby Doc fled for France in 1986
• Except for a short interlude in the 1970s – early years of
Baby Doc regime, investors stayed away
• Too unstable to launch any business venture and
• Tourists avoided it
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Political Stability IV
• DeSoto estimated that 97% of rural and 68% of urban
property is owned without official titles
• In Haiti’s highly corrupt, bureaucratic state extremely
difficult as well as time consuming to obtain an official
ownership title
• To purchase land legally necessary to complete 111
bureaucratic procedures that may take up to 19 years
• Effectively discouraging citizens from legalizing their
assets
• Whatever law there is – hardly enforceable – very high
crime levels
• Army disbanded in 1995, only international
peacekeepers
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Political Stability III
• Dominican republic some rising crime in the 1980s –
internal economic problems combined with fast
developing illicit drug trade
• However generally has fairly low crime figures
• Summing up
• Haiti often classified as a failed state unable to effectively
exercise power over the territory it controls.
• Earlier weak institutions had already start to degenerate
in the 1980s with the weakening of the Duvalier regime
• Disintegrate at a later stage, along with frequent
government changes and military coups.
• Institutional void that opened filled by gangs – often
connected with drug traffickers and different forms of
citizen organized groups on the other
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Openness I
• Tourism reflects both countries’ path of development
• Currently tourism generates 7% of DR GDP and a further
13-15% indirectly.
• Amounts to nearly 41,000 per capita – more than the
entire GDP of Haiti
• DR many tax breaks and incentives to develop the
tourism industry
• Haiti’s tourism industry has been harmed by
• internal strife and international sanctions and
• the sector’s continued growth in the DR
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Number of Turists: Haiti/DR
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Openness II
• Besides tourism another area of difference between Haiti
and DR lies in free trade zones – mainly assembly plants
in the clothing industry
• Toward the end of the 1970s the zones started to crop in
both countries
• The fall of Duvalier regime and the subsequent coups
and sanctions led to a total closure of free trade zones in
Haiti
• At same time free trade zones in DR continued to develop
with a workforce around 200,000 in 2000.
• As with other things DR was able to take advantage of its
potential whereas Haiti was not
• Tourist sector and free trade zones account for a large
extent for the advantage of DR over Haiti in terms of
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exports
DR: Openness (exports + imports) % GDP
30
Openness III
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Transfers From Abroad
• Inflow of Foreign Funds
• Both countries saw a large (in relation to GDP) inflow of
funds during period under consideration
• Three basic types of inflows:
• Remittances
• Foreign direct investment (FDI), and
• Official development aid
• In 1970-2000 funds transferred totaled $28 billion DR and
$10 billion Haiti
• Largest portion of these flows were emigrants’
remittances
• Currently approximately 2 million Haitians and 2 million
from DR living in US and Europe
• Remittances counted for 12-14% DR GDP, 25% for Haiti 32
Haiti/DR Capital Flows I
33
Remittances I
34
Remittances II
• In both countries households receiving remittances put
them toward everyday expenses
• In Haiti remittances often the only social security
protecting the population from starvation
• Second key expenditure for both countries was
education
• Finally even though 4-5% devoted to new business
ventures seems relatively little the volume of transferred
amounts to $850 million in DR and $270 million in Haiti
(where total FDI is $410 million)
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Capital Flows
• In general foreign funds have been one of the strongest
drivers of domestic investment
• Since the 1970s foreign investors have clearly favored DR
• With almost identical location and quite similar labor
costs, decisive factors seem to be
• The amount of bureaucratic barriers, and
• The broadly understood country risks
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Summary and Conclusions I
• In the DR a combination of
• Predictability,
• Political stability, and
• Protection of property rights
• Have been conducive to investment and heled make
better use of the country’s advantages:
• cheap labor,
• pristine beaches, and
• proximity to the United States
• Free trade zones and the tourist sector alone account for
one third of the difference in levels of GDP per capita
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Summary and Conclusions II
• Haiti despite the same advantages was not able to benefit
from them due to
• Frequent power changes,
• rising crime and
• the progressive deterioration of the state
• discouraged citizens from investing while foreign
investors and tourists avoided the nation
• Back in 1950 the two countries shared similar technical
and social infrastructure
• As state structures in Haiti gradually decomposed and
(and in DR development)
• Investment in DR 19% of GDP
• Haiti 9% of GDP
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Summary and Conclusions III
• Due to an efficient education system population of DR
much better educated
• In DR 16% of the population over 15 is illiterate
• In Haiti 50% is illiterate
• DR’s political stability paved the way for development of
country’s economic cooperation with other countries
• Haiti with its frequent and violent power struggles could
not be perceived as a credible partner
• Over the time period studies DR gradually shifted away
from its role as a sugar exporter and developed an
industry capable of selling export goods worth $5.7
billion in 2010 – Haiti’s figures was $0.3 million
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Summary and Conclusions IV
• Extreme poverty in Haiti makes country
• Politically unstable, and vulnerable to external shocks
• Impedes any attempt to restore the basic state institutions
needed for economic development
• Combined with rural over population , poverty has led to
over exploitation of he Haitian forests – only 4% of total
area is forested compared to 30% in DR
• Makes the country even more vulnerable to hurricane
destruction as well as other national disasters.
• Deficiencies in Haiti exposed by 2010 earthquake
Death toll Haitian earthquake 100,000 – would have been
significantly less in a developed country.
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Haiti/DR Conflict I
• Robert Looney, “Haiti: History”, Europa files on Sakai
• In 2013 Haiti’s relationship with DR became severely
strained.
• In September DR Constitutional Court ruled that children
born to parents who were considered “in transit” in the
country were no longer DR citizens
• Irrevocable ruling could render thousands of DominicanHaitians stateless
• Ineligible for all social benefits, including formal employment
• Education or health care, and
• Potentially subject to deportation
• Most of these individuals were born and raised in DR and
many granted DR nationality at time of their birth
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Haiti/DR Conflict II
• Following ruling representatives of each country have
had a series of monthly meetings to resolve issues
• Some flexibility over citizenship on the DR side
• In May 2014 DR Senate approved a bill providing path to
citizenship to hundreds of thousands of Dominican-born
children migrants
• However DR citizenship process was slow
• Many Haitians affected were unable to secure the
required identification documentation
• Application deadline extended several times
• April 2015 DR President announced deadline would not
be extended past June 15
• Dominican officials argued that the state could not afford
to grant citizenship to 800,000 foreigners living in the
42
country
Haiti/DR Conflict III
•
•
•
•
Migration from Haiti had been increasing for years
Particularly strong after the 2010 earthquake and
From mid-2014 with a political crisis in Haiti
Prompted Dominican officials to bolster border security
and increase depurations
• Human rights groups warned that up to 100,000
individuals of Haitian descent would be at risk of
deportation
• So far mass deportations have not occurred due to
international pressure and threat of sanctions against DR
• Currently Haitian officials and entrepreneurs from both
countries planning initiatives that would create several
economic zones along the border
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