Special Economic Zones in the OIC Region:
Learning from Experience
33
Box 12 - Backward and Forward Linkages within Dominican Republic SEZs 44 45
44 World Bank, (2016) Special Economic Zones in the Dominican Republic: Policy Considerations for a more Competitive and
Inclusive Sector.
45 Willmore, L (1995) Export Processing Zones in the Dominican Republic: A Comment on Kaplinsky. World Development,
Great Britain.
A number of studies have found that the Dominican Republic has a poor record with regards to
fostering backward and forward linkages with the domestic economy. It is observed that there has
been an historic reliance on imported inputs, which has increased in recent years as the Dominican
Republic has joined more sophisticated global value chains and reduced its reliance on traditional
garment production which formed the basis for many of the original EPZs.
This is primarily a result of more production stages of the value chain being conducted within the
SEZs, the result being that an increasing proportion of inputs are imported rather than being
sourced domestically. An economic census conducted by the Central Bank in 2014 found that there
were also significant variations between the sourcing of inputs between different industries. It was
recorded that traditional zone enterprises such as textiles and clothing and footwear sourced
approximately 28% and 22% of their inputs domestically. In contrast, industries with greater links
to global value supply chains such as medical and surgical equipment and electrical equipment
source approximately 3% of inputs domestically. It was found that the majority (87%) of SEZ
companies also import their machinery from outside the domestic economy.
Three primary reasons have been given for the Dominican Republic’s performance in fostering
backward linkages (Willmore, 1995):
1. Until 1993 each sale from the customs territory to an EPZ company required an export
license – this discouraged domestic firms from creating supply chain linkages with EPZ
firms;
2. Absence of effective legislation to facilitate the ‘temporary’ import of goods which are
incorporated into exports. This made products within the customs territory uncompetitive
in the EPZ markets; and
3. Tariff and non-tariff barriers to imports were high so manufacturers producing for the
small domestic market would not be expected to be competitive. In addition local products
were uncompetitive in price and quality compared to imported goods.
Efforts to foster stronger development of backward linkages now include initiatives from the
national commission for SEZs (CNZF) such as the organisation of match-making rounds in 2015
which included 60 business to business meetings. CNZF is also training domestic producers on the
quality certifications required to become suppliers to SEZ firms.