The Effect of Tourism on Dominican Republic’s Economy

The Effect of Tourism on the Dominican Republic’s Economy

Introduction

The Dominican Republic is located in the Caribbean region approximately 800 miles from Miami between the Caribbean Sea and the Atlantic Ocean. It is located in the west of Jamaica on the island of Hispaniola. The republic has an estimated population of ten million people with ten percent of the population living in Santo Domingo the capital city. The country’s official language is Spanish and 95% of its residents practice Catholicism (Adams and Brian 985). It is a popular holiday destination due to its warm temperatures, which range from 25-30 degrees Celsius, several aquatic activities sites and diverse culture. According to Payne, developing countries usually recognize that tourism contributes positively to their economies by earning foreign currency into the domestic market (2).

Dominican Republic has extensive sandy beaches, historical sites and other recreational sites that attract hoard of tourists annually. Its close proximity to the United States acts as an advantage to the country as many tourists prefer to visit the country to avoid distance travels. The country also practices agriculture with sugar and tobacco as their primary crops. In 2005, the country received over 3.6 million tourists and the tourist sector accounted for 7% of the national GDP (Barrera, Gjurcilova, Rabinowitz and Suemori 1). Tourism has increased tremendously since 1978 from around 257,000 tourists to approximately 3.7 million in 2009 (Payne 4). Countries that send the largest number of tourists include the United States, Germany, United Kingdom, Canada, and Italy among others. It is quite evident that tourism in Dominican Republic has steadily increased over the years; therefore, this paper explores the impact that tourism has made in the economy of the Dominican Republic.

Background

            The republic occupies 48,670 sq kilometers with a coastline of approximately 1,288 km   and its geographical location in the middle of hurricane belt enables the coastline to endure storms from June to October (CIA). Most of the population resides on urban areas as manufacturing and service industries offers the largest portion of employment. The collaboration between the hotel industry and the local community brought many changes in the economic sector (Lionetti and Oscar 22). The beginning of the 21st century saw the service sector surpass the over relied agricultural sector in contributing to the national revenue. In the late 1980s and early 1990s, the agriculture sector had offer employment to most of the residents; however, situation changed because by 2009, 66% people were employed in the service sector while only 14.6% remained in the agriculture sector (Adams and Brian 987). At the end of 1990s, the Dominican Republic was established as a cheap travel destination; hence, the large influx of tourists over the recent years. According to Gonzalez et al., in 2010 the agriculture sector accounted for 9% of total GDP compared to 61% contributed by the service sector (3). The new source of livelihood in the country had some effects on the social, political and economic environment.

Research Question

The main research question of this paper is to explore and outline whether tourism in Dominican republican country has positive or negative economic impacts.

Effects of tourism on economy in Dominican Republic

            Previously, the Dominican Republic was suffering from political instability that zero rated the economic growth in the country. After attaining political independence and stability, the country formulated policies developed to sustain the economy of the country. As a result, economy grew at an average rate of 7.6% in the late 1990s; thereafter, the economy stagnated due to the recession and reduction of demand for manufacture goods (Lionetti and Oscar 20). The situation worsened in 2003 when the economy contracted at an average rate of -0.3% during the Mejia administration. After Fernandez took over, he directed his focus to tourism and it did not take long for him to reap the benefits. In order to understand the effects of tourism in the economy of Dominican Republic, this paper categorized different segments that had economic impacts. In this case, there are both primary and secondary economic impacts.

  • Primary Economic Impacts

Primary effects are the impacts that directly affect the economy due to increased tourism activities in the region.

  • Overall economic performance

The republic is a developing country characterized with majority of its residents being low-income earners. For instance, in the year 2005 the total GDP per capital was $6,761 and an inflation of 3.5% (CIA). In 1980, the national GDP was $6.6 billion and it grew to a percentage of 28.3 in 2005 exhibiting a 4.2% average growth (Hanke 3). In fact, the country was recuperating from the 2003-2004 banking crisis that had triggered inflation, devaluation of currency, unemployment and deterioration of income levels. From 1992 when the country diversified into tourism, GDP grew with 74% and inflation stagnated in the single digits up to the wake of banking crisis (Adams and Brian 985). Before the recession in 2002, the rate of inflation was 0.4 percent but it propelled to 42.5% in the following two years (Hanke 3). One year later, the population growth was quite insignificant making the per capital economic growth to be 3.1%; unemployment was a little bit high with 16% of the population being totally jobless. In 2010, tourism offered 16% total employment reducing the rate of unemployment significantly (Gonzalez et al 7). However, the effects of the banking crisis in 2003 are still dire in the country because the rate of unemployment is still above ten percent.

Another reason that attributes to unemployment is the harsh requirements imposed by the government on tourism sector, for instance, an individual must attain strong knowledge in English to get a job whereas the country’s official language is Spanish. As a result, in spite of the high revenue contributed by tourism, local residents do not directly benefit from it. However, the changes in economy resulted to the abrupt shifts in employment patterns (Lionetti and Oscar 15). Majority of the residents have moved to salary and wages type of employment, and professional and technical employment. According to the international labor organization, people living in the Dominican republican have switched to formal employment in line with labor legislation, income taxation and other employment entitlements (Payne 10). As a result, the rate of productivity has increased compared to the average working hours. Unfortunately, the wage share has declined with 7% in 2010 compared with 2000. The UNDP human development index ranks the country 88 out of 174 countries based on economic indicators.

  • Trade

Tourism enables a country to foster international relations that are usually beneficial to the member state. As a result, the country experiences a positive balance of trade since it acquires trading partners. The Dominican Republic for instance has grown strong relations with the United States for quite a while. As a result, the country ratified a free trade agreement with the U.S and other five Central American countries, popularly known as CAFTA-DR, in September 2005 (Gonzalez et al 3). The positive rapport created by tourists visiting the Dominican Republic triggered the signing of the agreement. Products manufactured in the free trade zones (FTZs) are exported to the CAFTA-DR countries with some going as far as china and Western Europe. The Dominican Republic imports petroleum, and other petroleum related goods, consumer goods, automobiles and foodstuffs in return. In 2010, FTZs accounted for 60% of the total exports that amounted to U.S $4.8 billion (CIA n.p). Similarly, domestic trade such as the hotel industry benefits equally by the presence of tourists in the region; therefore, tourism has boosted trade in the Dominican Republic.

  • Infrastructure

In order to sustain the continuous flow of tourist, the government is effortless dedicated to streamline infrastructure in the region. Although there have been claims that the country has poor infrastructure, but there are notable efforts to align the situation. Payne asserts that the republic performs relatively well in terms of in terms of physical structures compared to its overall competitiveness performance (Barrera 23). The government has developed road networks to enable tourists to access the recreational sites and employ more people in the sector. Installation of electricity lines in major homestead is ongoing, although the World Bank predicts that the demand will surpass the supply by 2015.

  • Secondary Economic Impacts
  • Political institutions

Usually, developing countries portray a democracy deficiency that largely affects their economic status. For example, the Dominican Republic was ranked 112 concerning its political institutions in 2000; however, it deteriorated to 136 in 2011 (CIA). The major reasons that led to this downfall were corruption, poor public safety, weak legal framework and low human capital. Despite the large amount of revenue contributed by tourism, individualism and self-interests among leaders contributes to misappropriation of to misappropriation of these resources.

  • Diversification of investors

Tourism boosts the correlation between developed and developing countries to attain mutual benefits. For instance, the relationship between the Dominican republican and other states fosters foreign investments. As a result, the country becomes integrated and can be able to compete with other developed countries.

  • Stock market performance

The Dominican Republic is ranked 80th according to the economic freedom with a 61.3 score with a 1.6 increase from 2013. Government spending is approximately 92.3 while fiscal and financial freedoms are 83.7 and 40 respectively (Gonzalez et al 4). Unemployment rate is currently at 13.0%, GDP of $98.7 billion and inflation rate of 3.7%. These figures have risen drastically from 2012 to 2014 and economists attribute the increase to the continuous growth in tourism sector.

  • Other impacts

Presence of foreigners has attributed to increase in literacy levels as many people are seeking education to acquire employment in the sector; consequently, the increase in education levels results to a reduction in crime rates. Similarly, the country has become competitive in the region and it is ranked 12th among the Caribbean countries (Barrera 56). Tourism has resulted to a negative impact known as sex tourism that has promoted prostitution in the country. The country has experienced an increase in young people engaging in commercial sex with foreigners. Elsewhere, the political institution has failed to address the wage disparity and revenue equality. In spite of the revenue collected through tourism, majority of the residents remain poor and sharing inadequate resources such as electricity.

Conclusion

            The Dominican Republic has accrued numerous benefits attributed to tourist activities that have contributed to its dynamic economy over the last decades. The economy has largely depended on tourism sector to improve its former deprived state. Hanke suggests that the Caribbean is more tourism centered than any other part of the world; hence, many countries are investing in tourism (3). It is evident that tourism has enabled the state of economy in the Dominican Republic to stabilize and as a result, people have switched from informal to formal employment. Formal employment helps them to enjoy benefits such as medical care insurances, old age savings and attaining global standards in terms of competitiveness. Additionally, the country has cultivated international relations that have enabled it to acquire trade partners. Tourism has created job diversification where industries such as hotel industry and transport industry have been revived. As observed earlier, the Dominican Republic is performing quite outstanding in the stock and security exchange. Tourism has also attracted foreign investors who contribute to economy growth (Adams and Brian 987).

However, it has contributed to some negative impacts such as sex tourism that puts the public health at risk. It is easier to contract sexual transmitted diseases due to the increase in commercial sex workers. In addition, it has contributed to greed among leaders because they want to scramble for the funds brought by tourism. The increase in formal employment widens the gap between the rich and the poor resulting to wage inequality and it locks out the unskilled labor from employment. On the contrary, the positive economic impacts outweigh the negative impacts that can be remedied by the government. Virtually, developing proper frameworks and policies can enable the government to reduce the challenges associated with tourism (Lionetti and Oscar 24). Ultimately, tourism has numerous positive effects in the Dominican Republic; hence, the government should continue to invest in it to reap more benefits.

Works Cited

Adams, Philip D., and Brian R. Parmenter. “An Applied General Equilibrium Analysis Of The Economic Effects Of Tourism In A Quite Small, Quite Open Economy.” Applied Economics 27.10 (1995): 985-994.

Barrera, Baruch et al. “Tourism in the Dominican Republic.” MOC Project. 24 may 2007. Web. 11 April. 2014

CIA, “World Fact Book,” https://www.cia.gov/library/publications/the-world-factbook/,

Gonzalez, Fernando et al. “The Dominican Republic Tourism Cluster.” 4th may 2012. Web. 11 April. 2014.

Hanke, Steve H. “The Dominican Republic: Resolving the Banking Crisis and Restoring Growth.” The CATO institute Foreign Policy Briefing. 20 July 2004

Lionetti, Stefania, and Oscar Gonzalez. “On the Relationship between Tourism and Growth in Latin America.” Tourism and Hospitality Research 12.1 (2012): 15-24. ProQuest. Web. 11 Apr. 2014.

Payne, Sara. “Tourism in the Dominican Republic: Social and Economic Effects.” Gatton research publication. 3.1(2010): 1-20