Special economic zones in the Dominican Republic: policy considerations: special economic zones, global value chains, and the degree of domestic linkages in the Dominican Republic for a more competitive and inclusive sector:

The Dominican Republic is often considered an example of the successful implementation of Special Economic Zones (henceforth SEZs) in the Western hemisphere. The zones fueled economic growth during the 1980s and 1990s and, while they experienced a sharp decline in employment due in part to the expiry of the end of the Multi-Fiber Agreement and stronger international competition in the textile and apparel industry in 2005, signs of recovery have been observed since 2009. Surgical equipment, chemicals and plastics, and footwear have recently emerged as the new drivers of export dynamism in the zones (World Bank, 2015). The objective of this report is to inform the policy discussion around the developmental impact of SEZs in the Dominican Republic by empirically assessing i) the implications of regulatory reforms aimed at complying with WTO disciplines regarding the elimination of incentives conditioned on export performance for SEZs firms, ii) the extent to which SEZs participate in Global Value Chains, and iii) their linkages with domestic suppliers. The report is organized as follows: The second section presents the historical importance of SEZ as an engine of economic growth in the country. The third section depicts the structural shift in terms of production in SEZs and evaluates the degree of value addition taking place in the Dominican Republic. The fourth section evaluates the degree and evolution of linkages between SEZs and local firms. The fifth section shows the impact of the regulatory changes in the SEZ regimen undertaken to comply with WTO disciplines. Finally, some conclusions and policy recommendations are presented in section six