Foreign direct investment in the Dominican Republic: consequences and recommendations for sustainable growth

Harri Ramcharran ()
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Harri Ramcharran: University of Akron

Journal of Economics and Finance, 2017, vol. 41, issue 3, No 12, 610-629

Abstract: Abstract This research, using a production function methodology, examines the effects of international trade and foreign direct investment (FDI) liberalization policies on the economy of the Dominican Republic during the 1990s. Most of the FDI was in the free trade zone (FTZ) sector. The results have important ramifications on current policies to promote sustainable economic growth. The econometric results indicate evidence of unbalanced growth characterized by regional and technological dualism: (a) an efficient FTZ sector, highly dependent on FDI, and operating under increasing returns to scale, and (b) a relatively inefficient primary/secondary sector operating under decreasing returns to scale. These growth strategies fail to establish economic linkages between different economic sectors; also they focus on the development of the FTZ sector whose contribution to GDP averages only about 3 %. Policies to promote sustainable growth necessitate strategies to develop and diversify the primary/service sectors. Importantly, recently revised agreements on international trade will lessen the competitiveness of the FTZ sector.

Keywords: Free trade zone; Dominican Republic; Uneven growth (search for similar items in EconPapers)
JEL-codes: F14 F15 F21 (search for similar items in EconPapers)
Date: 2017
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DOI: 10.1007/s12197-016-9361-y

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