Explaining the tragedy of Haiti and the thriving of the Dominican Republic comes down to property rights and incentives.
The horrific events unfolding in Haiti have caught the world’s attention. Haiti is an unusually poor country compared to the rest of the Western Hemisphere. It tends to make international news only for terrible events, such as violent uprisings or the 2010 earthquake.
But Haiti is on the same island as the Dominican Republic, a country with an entirely different reputation. The Dominican Republic is a tourist destination that produces top MLB players and has had one of the fastest-growing economies in the world for years. Its GDP per capita is now almost as high as Mexico’s, making it one of the wealthiest Latin American countries.
By land area, the island of Hispaniola, which Haiti and the Dominican Republic share, is a little larger than West Virginia. How can such a small island have two countries with such different outcomes?
Economist Tyler Cowen, in a recent column at Bloomberg, looks into that question.
The most obvious difference between Haiti and the Dominican Republic is that Haitians are nearly all of African descent, while Dominicans are mostly of mixed European, African, and/or native descent. Owing to their respective colonial histories, Haitians speak French and Dominicans speak Spanish.
But Cowen points out that these cultural differences can’t be the explanation. “For a Black Caribbean nation, Haiti is especially poor — and for a Latino nation, the Dominican Republic has done especially well,” he writes. “So there must be other significant factors in play, and in fact differences in policy largely account for the different outcomes.”
Haiti’s history of government is notoriously checkered. But it’s worth noting that democracy doesn’t have too long a history in the Dominican Republic either. The country was governed by authoritarian Rafael Trujillo from 1930 to 1961 and has had truly free elections only for a few decades. The U.S. military has intervened in both Haiti and the Dominican Republic several times over the past hundred-plus years.
It turns out that the difference in economic performance has a lot to do with that boring stuff that economists always talk about: property rights and incentives.
Property rights in Haiti have been very weak and have stayed that way, while in the Dominican Republic they have become stronger over time. Cowen attributes that to the Dominican Republic’s superior agriculture sector. Both countries have suffered deforestation, but it’s far worse in Haiti because of weak property rights.
“Haitians have long used charcoal as an energy source, which led to unchecked deforestation, soil erosion and desertification,” Cowen writes. “To the extent that the Dominican Republic still experiences deforestation, it often comes from livestock cultivation, a far more economically productive activity than gathering wood for charcoal.”
The Dominican Republic today can effectively grow all the food its residents need to live, but Haiti remains dependent on foreign aid. This distinction is important because during earlier stages of economic development, agriculture matters a lot. “Surpluses from agriculture enable the accumulation of savings, which finances broader commercial investment and helps people start small businesses,” Cowen writes.
The Dominican Republic has capitalized on those opportunities since the 1980s, and it has attracted foreign direct investment by reducing tax and regulatory barriers in special economic zones. “Today more than half of Dominican exports result from these arrangements,” Cowen writes. “Equally important, the program’s 40-year history means that companies now see it as credible, so its benefits should continue.”
Hispaniola isn’t a clear-cut communism-vs.-freedom story, such as East and West Germany. But it is an instability-vs.-stability story. Businesses at least know that they can count on the Dominican government to exist, enforce property rights, and encourage economic growth. No such guarantees are forthcoming in Haiti, a situation that’s bad for Haitians most of all. This graph of GDP per capita for each country since the end of Trujillo’s dictatorship in 1961 tells the story: