Dominican Republic and Vietnam in the Global Apparel Economy A Comparative Analysis of Competitiveness and Economic Leakage

Abstract

Loveitstitchitkeepit.com compare the textile and apparel sectors of the Dominican Republic and Vietnam through the lens of economic leakage—the loss of value via tax incentives, profit repatriation, weak domestic linkages, and external control of intellectual property (IP). Drawing on recent data on free zones and export performance in the Dominican Republic and on export, FDI, and value‑added indicators in Vietnam, We argue that both countries are export‑competitive, but Vietnam captures a significantly larger share of value domestically. The analysis concludes with policy implications for the Dominican Republic as it seeks to remain competitive while reducing leakage.

1. Introduction

Export‑oriented industrialization has been central to both the Dominican Republic and Vietnam, particularly in textiles and apparel. The Dominican Republic has relied heavily on export free zones as a platform for attracting foreign investment and integrating into U.S.‑oriented supply chains. Vietnam, by contrast, has become one of the world’s leading textile and garment exporters, embedded in Asian and global value chains and supported by large inflows of foreign direct investment (FDI).

While both models generate exports and employment, they differ sharply in how much value is retained domestically. We use the concept of leakage to structure a comparative analysis and to identify reform pathways for the Dominican Republic.

2. Conceptual framework: Economic leakage in export‑processing models

For this analysis, economic leakage is defined along four dimensions:

1. Fiscal leakage: foregone public revenue due to tax exemptions and incentives.

2. Profit leakage: repatriation of profits by foreign‑owned firms with limited domestic reinvestment.

3. IP leakage: external ownership of brands, designs, and other intangibles that capture the highest margins.

4. Value‑chain leakage: weak domestic linkages, high import dependence for inputs, and limited upgrading into higher‑value segments.

The Dominican Republic and Vietnam are compared qualitatively across these dimensions, using recent descriptive data and policy documentation. Where leakage assessments go beyond explicit source statements, they are presented as analytical inferences.

3. Country profiles

3.1 Dominican Republic: Free‑zone nearshoring platform

Free zones have become a pillar of the Dominican economy, attracting foreign investment, generating employment, and driving exports. In 2024, free‑zone exports reached approximately US$8.4 billion, with continued growth in infrastructure, foreign investment, and jobs.

Within this model, textiles and apparel are a core sector: 106 textile manufacturing companies operate in free zones, generating more than 38,000 direct jobs, supported by a vertically integrated supply chain linked to national industry under Law 56‑07. The regime offers broad tax incentives and preferential access to major markets through agreements such as DR‑CAFTA and others.

The result is a nearshoring‑oriented platform: fast lead times and strong connectivity to the U.S. market, but heavily dependent on the free‑zone incentive structure.

3.2 Vietnam: Deeply integrated global manufacturing hub

Vietnam’s textile and garment industry is one of the country’s leading export sectors. Export revenues are projected to reach around US$50 billion in 2026, with a substantial trade surplus and a notable domestic value‑added rate.

The sector has attracted more than US$37 billion in FDI, with roughly 3,500 foreign‑invested projects, and foreign‑invested enterprises account for about 65% of total export turnover in textiles and garments. Vietnam’s industrial structure includes yarn, fabric, dyeing, finishing, and garment production, enabling full‑package manufacturing and deeper domestic value capture.

4. Comparative leakage analysis

4.1 Fiscal leakage

In the Dominican Republic, free zones are explicitly designed around generous tax incentives. Legal and promotional materials emphasize broad exemptions from key taxes (including income tax and import duties) as a central attraction mechanism for foreign investors. Given that free zones account for a large share of national exports, this implies substantial fiscal leakage, as a significant portion of export‑generated value is not captured through taxation. Ongoing policy debates about recalibrating incentives reflect official concern about the fiscal cost of this model.

Vietnam also offers tax incentives to export‑oriented manufacturers, but available evidence suggests these are partial and time‑bound (e.g., reduced corporate tax rates for limited periods), rather than blanket exemptions. As a result, while Vietnam uses incentives to attract FDI, it maintains a more substantial tax base from its textile and garment sector. This implies lower fiscal leakage relative to the Dominican Republic.

4.2 Profit leakage

Both countries host large numbers of foreign‑invested firms. In Vietnam, foreign‑invested enterprises account for about 65% of textile and garment export turnover, indicating significant foreign participation and potential profit repatriation. However, the scale of the industry, the presence of domestic firms, and ongoing reinvestment by foreign investors suggest that a meaningful share of profits is recycled into local capacity, including modern factories and upstream facilities.

In the Dominican Republic, foreign ownership is also prominent in free zones, and the combination of broad tax exemptions and export orientation facilitates easy repatriation of profits. Given the more limited domestic industrial base and weaker upstream integration, it is reasonable to infer higher profit leakage: a larger share of surplus generated in free zones likely accrues to foreign parent companies rather than being reinvested domestically.

4.3 IP leakage

Vietnam has increasingly invested in domestic brands, design capabilities, and higher‑value segments of the textile and garment chain. Sources highlight a growing domestic value‑added rate and the sector’s role in broader industrial upgrading. This suggests that, while many global brands still control the most lucrative IP, Vietnam is gradually capturing more intangible value through local design, product development, and branding.

In the Dominican Republic, promotional materials for free‑zone textiles emphasize manufacturing capabilities, vertical integration, and contract production for global brands, rather than domestic brand ownership or design IP. It is therefore reasonable to infer high IP leakage: Dominican facilities produce for foreign brands whose trademarks, designs, and marketing strategies are controlled abroad, with the associated rents captured outside the country.

4.4 Value‑chain leakage

Vietnam’s textile and garment sector spans fibre, yarn, fabric, technical textiles, and garments, with strong backward linkages and a significant domestic value‑added rate. This reduces import dependence for key inputs and allows more value to be retained within the national economy.

By contrast, although the Dominican Republic has developed a “robust textile supply chain” within free zones and linkages to national industry under Law 56‑07, the overall model remains closer to an export‑processing platform. Free‑zone firms benefit from duty‑free import of machinery and inputs, which can weaken incentives to develop deep domestic supplier networks. It is therefore plausible to characterize the Dominican model as more prone to value‑chain leakage—importing inputs, assembling or processing them, and exporting finished goods with limited domestic upstream participation.

5. Discussion: Why Vietnam captures more value

The comparison suggests that Vietnam’s model, while also reliant on FDI and global brands, is structurally better positioned to retain value:

• Industrial depth: Vietnam’s integrated textile base (yarn–fabric–dyeing–garment) allows it to internalize more stages of production.

• Scale and diversification:  Large export volumes, diversified markets, and a mix of foreign and domestic firms create more opportunities for domestic upgrading.

• Partial, not total, incentives: Tax incentives are used to attract investment but do not fully exempt the sector from contributing to public revenue.

The Dominican Republic, in contrast, has built a highly competitive nearshoring platform with strong export performance and employment, but at the cost of higher leakage: broad tax exemptions, greater dependence on foreign brands and IP, and weaker upstream integration.

6. Policy implications for the Dominican Republic

From this comparative perspective, several policy directions emerge (as analytical recommendations):

1. Recalibrate incentives toward domestic value: Shift from broad tax holidays to tiered, performance‑based incentives that reward local sourcing, skills upgrading, and reinvestment.

2. Deepen the textile base: Encourage investment in fabric, dyeing, and finishing to reduce import dependence and emulate Vietnam’s industrial depth.

3. Promote domestic IP and branding: Support Dominican designers and brands, and incentivize foreign firms to co‑locate design and product‑development functions in the country.

4. Strengthen linkages and spillovers: Develop supplier‑development programs and cluster policies that integrate free‑zone firms with domestic SMEs.

5. Enhance transparency on tax expenditures and value retention: Regular reporting on tax incentives, local value added, and reinvestment would make leakage visible and governable.

These measures aim not to dismantle the free‑zone model, but to modernize it so that competitiveness and value retention are jointly pursued.

7. Conclusion

Both the Dominican Republic and Vietnam demonstrate that export‑oriented textile and apparel industries can drive growth, employment, and integration into global markets. However, the distribution of gains differs markedly. Vietnam’s deeper industrial structure, partial tax regime, and growing domestic capabilities allow it to capture more value at home, while the Dominican Republic’s free‑zone‑cantered model is more vulnerable to fiscal, profit, IP, and value‑chain leakage.

For policymakers and scholars, the key insight is that export volume alone is an insufficient metric of success. The critical question is how much of the value generated by global production networks is retained domestically—and how policy can shift that balance without undermining competitiveness. The Dominican Republic’s ongoing debate over incentive reform offers a timely opportunity to move in that direction, informed by comparative experiences such as Vietnam’s.