Entrepreneurship, Export Diversification, and Economic Reform: The Birth of a Developmental Community in the Dominican Republic

Abstract

A large and growing number of studies holds that export processing zones reconcile the otherwise incompatible interests of two potentially powerfid interest groups, export-orient ed manufacturers who favor open markets and their import-competing counterparts who are partial to tariffs and quotas, and thereby offer their vulnerable host country govern ments a politically expedient alternative to rapid, across-the-board trade liberalization.l While Steven Radelet and Jeffrey Sachs trace the growth of the newly industrializing countries to the diffusion of export processing zones in the 1960s and 1970s and therefore portray the export processing zone as the paradigmatic institution of export-led industri alization, they acknowledge?and bemoan?marked variation in zone performance over space and time and therefore call for additional research.2 Why would the identical institu tion or export incentive yield widely varying consequences by region or decade? This arti cle addresses the question by exploring the social origins of manufactured export growth in the fastest growing economy in late twentieth century Latin America, the Dominican Republic, and thereby develops a structural alternative to the currently regnant, policy centric approach to export diversification in the developing world. On the one hand, comparative historical and quantitative data can trace variation in the performance of the Dominican Republic's export processing zones to two dis tinct features of their surrounding regional environments: the nature of the region's traditional relationship to the world market (integrated or isolated) and the power of the region's indigenous capitalist class (high or low). The first variable predicts whether an export processing zone will lure investors, create jobs, and spur manu factured export growth. Thus, the traditionally sugar growing southeast and tobacco, cocoa, and coffee exporting north feature successful zones, and the traditionally import-competing and subsistence-oriented regions to the south and southwest fea ture unsuccessful ones. The second variable determines who will invest in the export processing zones. Thus, the traditionally foreign-dominated sugar-growing region's export processing zones are dominated by footloose foreign investors, and the tradi tionally domesticated tobacco, cocoa, and coffee growing region's zones are domi nated by internationally competitive indigenous investors and therefore offer a promising, albeit in all likelihood inimitable, development trajectory (see Table 1).