Haiti vs. the Dominican Republic

Why the big divergence?

The countries of Haiti and the Dominican Republic together form the island of Hispaniola in the Caribbean. Haiti comprises roughly the western third of the island, while the D.R. makes up the eastern two-thirds.

The economic divergence between these two countries is one of the most remarkable in the world, perhaps surpassed only by North and South Korea. As recently as 1960, the two countries had similar standards of living. Today, the D.R., by some measures, is eight times as rich as Haiti, while Haiti’s standard of living hasn’t advanced at all since 1950.

The D.R. has already surpassed Brazil and Colombia; if Covid doesn’t knock it off its growth trend, it’ll soon pass Mexico and Argentina.

What explains this incredible divergence? The short answer is that no one exactly knows for sure; the causes of economic development are complex, and there are lots of big theories with very little empirical proof. We know a few correlates of development, but these generally fall short of full explanations. And most of these factors are things that themselves require explanations — for example, low inflation tends to correlate with economic growth, but what explains low inflation? Maybe there are deep institutional or historical or cultural or geographic or other factors leading to inflation, or maybe it was just a random policy choice by the right central banker.

The reason it’s interesting to look at this pair of countries is that there are lots of factors that are basically controlled for. Haiti and the D.R. share the same geography. Both began as colonies of European powers not known for establishing high-quality institutions (France for Haiti, Spain for the D.R.). And so on. This doesn’t make the question of their relative performance simple, but it does make it slightly less hideously complex.

Anyway, here are some of the explanations people have given for why one of these countries is doing so much better than the other.

External debt

When Haiti won its independence from France, France sent warships to demand reparations for Haitian expropriation of French property (i.e. slaves and land). Haiti agreed to pay a considerable sum, and to give France cheap exports as well. Some people blame this monumental act of extortion for Haiti’s poverty. It makes a simple, intuitive sort of sense — if someone takes your money, it’s hard to get rich right?

But there are some big problems with this thesis. First of all, Haiti finished paying back this debt (which France reduced) in 1947. That’s at least a decade before Haiti and the D.R. started to diverge economically, and four decades before the divergence became pronounced. Furthermore, Haiti’s total external debt in 2019 was only about 15% of GDP, while the D.R.’s was about 40%! The D.R. is far more indebted to foreign countries now than Haiti is.

If France’s extortion caused Haiti’s poverty, it must have done so not by simply draining the country’s production, but by subtler, longer-term negative impacts on Haiti’s institutions, governance, geography, and so on. Perhaps, for example, Haitian economic policy tends to be more isolationist because its ill-treatment at the hand of France gave it a distrust of foreign countries. That can’t be ruled out, because development is so complicated, and because history is so hard to interpret. But the simple version of this explanation — that Haiti is poor because France took its money — just doesn’t make sense when explaining the last few decades.

It was still a pretty shitty thing for France to do, though.

Land mismanagement

Jared Diamond, in his 2005 book Collapse, blames deforestation for Haiti’s poverty. It has certainly been extensive. The French cut down lots of trees to make space for cash crops, and Haiti was forced to continue the policy to pay France back the money that France extorted from it. This may have created a political culture where Haiti saw deforestation as a natural tool of economic development. If you look at an aerial photo of the border between the countries, the difference is stark — the Dominican side is covered with trees, while the Haitian side has been stripped bare.

Just how much forest Haiti has is an interesting question. Most of the old-growth forest is gone, which has resulted in catastrophic losses to Haiti’s biodiversity. That is definitely a tragedy. But does biodiversity really drive economic growth? It seems highly unlikely. (Forests probably do make tourism a bit more attractive, but how much of Haiti is forested depends strongly on your definition.)

A more serious problem is soil erosion; if you don’t have enough trees, topsoil gets washed away and shrinks the amount of land available for farming. This is a big problem for Haiti, which is steadily losing arable land. But it still has more arable land than the entire Dominican Republic, despite being only about half as large in terms of territory! So the D.R. actually had — and has — less opportunity to farm.

Poor soil management does make it harder for Haitians to raise crops. There are various international initiatives underway to try to rectify this. It’s possible that poor soil management prevented Haitian farmers from building up a capital surplus that could be used to jump-start industry, as well as contributing to malnutrition (many Haitians are subsistence farmers). And deforestation makes Haiti more imperiled by the region’s frequent natural disasters.

Invasions

The U.S. invaded and occupied Haiti for two decades, from 1915 through 1934, basically to extract wealth and resources from the island. It also invaded and occupied the Dominican Republic around the same time, but ruled it for only 8 years. The U.S. sent troops to each country once more — to the D.R. in the 60s to stabilize the country during a civil war, and to Haiti in 1994 for a similar purpose.

The first pair of occupations was too long ago to directly affect the economic divergence, but they might have had different long-term effects. Were the U.S.’ invasions and occupations of Haiti and the D.R. different enough to alter their institutions in radically different ways? It’s hard to rule this out, since it’s one of those complex historical factors that’s easy to suggest but difficult to test. As for the second pair of occupations, it’s theoretically possible that U.S. intervention helped the D.R. retain a stable, development-oriented regime in the 60s, but failed to identify and install competent, growth-oriented leaders in Haiti in the 90s. But this is just historical speculation at this point.

Political stability

Political instability is one of those things that economists believe is utterly corrosive to economic growth. When you have an unstable country, businesspeople have to constantly fear expropriation (or even death), so investment dries up. Politicians are too busy trying to hold onto power to implement wise policies that actually grow the economy. People fear for their money and their lives, and nothing gets done.

There’s no hard-and-fast definition of political stability, but economists Laura Jaramillo and Cemile Sancak use data from the Polity IV database — which is about as hard-and-fast as we’re going to get — to show that Haiti is the least stable country in the region, while the D.R. is among the most stable.

In fact, the whole reason I’m writing this post is because Haiti is currently in chaos after the assassination of its president, Jovenal Moise. The chaos, which echoes the situation when the U.S. sent troops in 1994, underscores how dangerous it would be for most businesspeople to invest in Haiti.

The D.R., in contrast, does a pretty good job of ensuring orderly transitions of power without assassinations or coups. Sometimes this makes them wind up with awful dictators like Rafael Trujillo. Sometimes they get a smart, growth-oriented regime instead. But they don’t descend into general chaos like Haiti sometimes does.

Macroeconomic policy

Jaramillo and Sancak list a number of economic policies they think contributed to the D.R.’s success. The items I find more credible are:

1. Education: More Dominicans enroll in high school, both because the government encourages education strongly and because with far less of the population engaged in subsistence farming than in Haiti, fewer Dominican kids are needed to work on the farm. The D.R. has a literacy rate of 98.8%, compared to Haiti’s dismal 60.7%.

2. Infrastructure: The D.R.’s road network is almost 3 times as dense as Haiti’s, and it laid far more phone lines (back when that used to matter a lot).

3. Export orientation: the D.R. exports 24% of it’s GDP compared to only around 18% for Haiti. One of the D.R.’s signature policies is its system of free trade zones to encourage foreign companies to come in and set up shop.

4. Macroeconomic stabilization: The D.R. has had some spikes of inflation but has generally kept it pretty low, while Haiti’s inflation rate tends to be higher and more variable.

These factors are all pretty plausible (a couple I left out were less plausible), but they’re also highly endogenous. A richer country is able to spend more on education and infrastructure. It collects more tax revenues too, reducing the temptation to finance government borrowing with central bank money. And so on. Jaramillo and Sancak create a growth model to try to account for this endogeneity, but the model is basically impossible to validate with data. Which makes sense, because if Jaramillo and Sancak had a proven theory of how poor countries get rich, they’d be the most impressive economists who ever lived.

Putting it all together

So there are a bunch of theses for why the D.R. is so infinitely more successful than Haiti, but none of them quite satisfy on their own. The temptation, of course, is to throw all of the explanations in a bag and mix them together. If you do that, you arrive at a story like this:

Haiti was punished by external powers for its revolution in a way the D.R. was not. That created an enduring culture of suspicion of the outside world in Haiti, which prevented it from pursuing trade and exports as a goal like the D.R. did. The struggle against foreign powers also left Haiti with dysfunctional politics that didn’t support environmental protection or spending on infrastructure and education, as in the D.R.; instead, corrupt leaders looted what they could. Corruption and poverty combined to produce political and macroeconomic instability that has held the country down to this day.

The problem with this is that it’s a just-so story, conveniently engineered to make everyone happy by including their favorite causal factors. It just says “everything is important, everything is connected”. Which we may or may not ever know.

I don’t think we’ll ever have a nice, pat answer to the question of why the D.R. has succeeded economically while Haiti has failed. The simple existence of the pairing shows that when a country collectively decides it wants growth, it will generally get growth by hook or by crook. But how to get a country to collectively decide to pursue growth — and the political stability and smart policy required for that growth — is a harder question entirely.

Update: Some people have suggested various other factors that could contribute to the divergence. These include:

1) Institutions. Acemoglu and Robinson, naturally, blame extractive institutions for Haiti’s poverty. But as Jaramillo and Sancak point out, the variables that Acemoglu and Robinson (2001) use to proxy for institutional quality show parity between Haiti and the D.R.:

Of course it’s possible that this isn’t a great measure of institutions, and there’s other stuff that makes a big difference (though Jaramillo and Sancak point out that Dominican politics used to be even more unstable and chaotic than Haitian politics). But we shouldn’t let “institutions” become a just-so story that allows us to “explain” any divergence between countries by pointing at any institutional differences we can find.

2) U.S. shunning. The U.S. reacted to Haiti’s revolution by shunning it and refusing to trade with it in the early 1800s. Though this was over long before Haiti and the D.R. started to diverge, it might have contributed to a “me against the world” attitude in Haitian politics that eventually prevented the country from seizing on the opportunity for globalization and export-led growth.

More recently, the U.S. has established a number of trade agreements with both Haiti and the D.R.; Haiti’s exports are mainly clothes that it makes and sells to the U.S. (which buys about 80% of its exports). The era of shunning is long past.

3) Leadership. The D.R. was ruled for about three decades in the early and mid 20th century by Rafael Trujillo and his brother. Trujillo was a brutal dictator who carried out a genocide of Haitians in 1937 along with various other crimes, but he at least did make a concerted attempt to modernize the economy. Haiti, in contrast, was ruled for about three decades in the mid to late 20th century by Francois Duvalier and his son. The Duvaliers were notorious kleptocrats, feathering their own nests while ignoring economic development. So perhaps brutal but modernizing dictators are better than kleptocrats? It’s a possibility. But hopefully there is a third option!

Update 2: This blog post claims to be a “brutal takedown” of my post, but it is nothing of the kind. Its main argument is to challenge the accuracy of the price adjustments in the Maddison data I used for the graph at the top of the post, and then claim that the unadjusted data (which shows the D.R. ahead of Haiti already in the 60s) is the truth. This doesn’t follow, of course. The blogger also claims that the price adjustments were made in order to set Haiti equal to the D.R., but provides no evidence for that claim (and quotes text from the Maddison Project claiming a different reason for the adjustments). Additionally, the blogger uses sugar exports as an alternative measure of economic performance, which is clearly wrong (economies do a lot more than export sugar). And finally, the blogger posts an alternative graph of GDP that only goes through the mid-70s, thus making it impossible to see the huge divergence I document above. So, all in all, not a brutal takedown. When the blogger writes “I’m going crazy because even though I know the graph is wrong, I don’t have direct evidence to refute it,” they are being honest.