Free trade zones, liberalization, remittances, and tourism, for what?

Purpose - The Dominican trade deficit represents almost 16 per cent of its gross domestic product (GDP) and is insufficiently counteracted by tourism and remittances; not even a high devaluation closed the imbalance. Eighty per cent of the exports are from free trade zones. These facts reflect their low domestic entrepreneurial capacity. The purpose of this study is to critically evaluate the Dominican economic model. Design/methodology/approach - The author motivates the discussion with descriptive statistics and then applies multiple time-series regressions at the macro level and at the industry level. Findings - The attraction of foreign firms appears to substitute, and not complement, the building of local capacity. Regressions show that a GDP growth of 5 per cent does not decrease the high unemployment rate. Originality/value - Using new Okun’s equations, it is concluded that sectors dominated by local producers and improvements in the trade balance better impact the unemployment. These findings challenge conventional wisdom that characterizes the Dominican economy as a “successful story”.