Abstract
During the last three decades, the Dominican Republic has experienced a rapid process of transformation in its export structure and an acceleration of economic growth. Since the mid-1980s, the government promoted export processing zones (EPZs) and the tourism sector aggressively, providing generous incentives and creating effective institutions to regulate them. These vertical policies succeeded in developing pockets of excellence. Lack of accumulation of social- and firm-level capabilities in the rest of the economy, however, contributed to a parallel increase in structural heterogeneity that may hamper the Dominican Republic's long-term performance. The Dominican experience has at least three significant implications for the way we conceptualize and apply industrial policy in small countries: (a) the need to overcome sterile debates between horizontal and vertical policies, (b) the advantages of conceptualizing the process of development as one of continuous elimination of structural constraints to upgrading, and (c) the urgency of policy adaptation in the era of rapid globalization and Chinese competition.
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