In the economy of the Dominican Republic, certain mechanisms hinder income distribution in boom times, with the richest 1% accumulating wealth. Social inequality has become ingrained in the Dominican economy, as stated by Rosa Cañete Alonso in a special publication by the Academy of Sciences featuring the work of thirteen economists covering various topics.
Cañete Alonso highlights the presence of mechanisms in the Dominican economy that impede the distribution of income during prosperous periods. This has resulted in instances where GDP growth coincides with an increase in poverty.
The Dominican Republic ranks first among countries in Latin America and the Caribbean regarding the concentration of national income in the top 1%, and it is the third highest globally, surpassed only by Mozambique and the Central African Republic.
An analysis of elasticity reveals that had inequality in the country reduced to match the increase in income from 2016 to 2021, the reduction in monetary poverty would have been at least twice the observed decline of 4.8 percentage points in 2021. Instead, poverty would have decreased by 9.5 percentage points.
Conversely, a 10% increase in household income would result in a 19.7% reduction in poverty, while a 10% decrease in inequality would lead to a 27% decrease in poverty.
Inequality impedes economic growth and impacts society as a whole. According to the International Monetary Fund (IMF), an analysis of 156 countries reveals that when the percentage of total income received by low-income individuals and the middle class increases, the economy grows. Conversely, if the percentage of income held by the wealthiest individuals increases, the country’s economy contracts.
Addtionally, a simple regression analysis based on quarterly data from the National Continuous Labor Force Survey (ENCFT) shows that in the Dominican Republic, when the proportion of income received by the poorest population (quintile 1) increases, the average income of households also increases. However, if only the proportion of income received by the wealthiest (quintile 5) increases, the average income decreases, though with limited statistical significance.