Are you dreaming of buying a house in a sunny country? If so, you might have already considered Spain or the Dominican Republic. But which country is the better fit for your goals?
If you are thinking of buying a property in a sunny destination, the economic situation of the countries on your candidate list should be one of the factors considered as part of the overall analysis. At the end of the day, it’s all about the safety of your invested capital and the possibility of its growth, so the location where you invest your money plays a significant role in the success of the project.
This and subsequent investment posts will take a look at two Spanish-speaking countries, one of which has already made a name for itself as a mecca among foreign property buyers, while the other is slowly heating up in the investment arena – we’re talking about Spain and the Dominican Republic.
To compare the economic state of the two countries, I will refer to some of the following indicators, compiled by the World Bank and available on its website: World Bank Open Data | Data
- GDP per capita
GDP (Gross Domestic Product) measures the total value of goods and services produced within a country over a specific period (usually a year). GDP per capita, on the other hand, indicates the average value of goods and services per person in the same timeframe. This indicator allows us to compare the standard of living and economic development between different countries.
- According to the data, Spain’s GDP per capita was $29,674.5 in 2022, while for the Dominican Republic the value amounted to $10,111.2. It is worth noting that Spain has seen a decline in this indicator since 2008 – at that time it reached a maximum value of more than $35,000, and so far this number has not been surpassed.
- In the Dominican Republic, on the other hand, we can observe the opposite trend – since the beginning of the data series, the GDP per capita for the country has experienced an upward trend, and practically every year has ended with a higher value than the previous one, which means the country’s economic growth.
Graph comparing GDP per capita of Spain and the Dominican Republic
According to the data, the winner in this category is Spain, as the GDP per capita ratio there is higher than in the Dominican Republic, but… is it really the case?
We shouldn’t forget some additional aspects, including the stagnation of this indicator since 2008 for Spain and the growing potential of the Dominican Republic.
Investing in growing markets (so-called ‘emerging markets’), such as the Dominican Republic, is characterized by less stability but also higher potential return on investments, as they are not as ‘saturated’ as stable economies. The upward trend in the Dominican Republic should come as no surprise. For many years, the government there has implemented a number of measures to attract foreign investment, and thanks to the robust development of the tourism sector, the Dominican Republic has solidified its position as the ‘Queen of the Caribbean’.
- Inflation rate
Inflation, which is the phenomenon of a general increase in the price level, amounted to 8.4% in Spain in 2022 and slightly more in the Dominican Republic, at 8.8%. In comparison, in neighboring Haiti, this figure reached as high as 34% at that time. In this respect, the Dominican Republic and Spain rank at a similar level.
Graph comparing inflation rates in Spain and the Dominican Republic
If you’ve examined the chart, you’ve likely noticed the significant spikes in this indicator for the Dominican Republic during the 1980s and shortly after 2000.
The first spike was caused by the country’s poor economic situation, including fiscal and monetary imbalances, pervasive price controls, and extremely restrictive trade policies.
The second one resulted from a banking crisis, which led to economic instability and the depreciation of the Dominican peso [1]. While the situation has stabilized, it’s important to remember that developing markets are more vulnerable to such fluctuations.
- Gini coefficient
As part of the economic analysis, we also cannot ignore the Gini coefficient, which measures income inequality within a country. A higher value indicates greater inequality in income distribution among members of society – a scenario often observed in developing countries.
Regarding the values of this parameter for Spain and the Dominican Republic, over the years studied, the index reached higher values in the case of the Dominican Republic. In the 21st century in Spain, the Gini coefficient reached its maximum value in 2013 and 2015, amounting to 36.2%, and in 2022 it was already 33.9%. On the other hand, the situation is interesting in the Dominican Republic – in the chart below you can see that year after year the Dominican Republic successively decreases in this ranking, which indicates diminishing social inequality. This also affects the growth of the country’s economic potential (for example, by increasing access to education or healthcare among people who previously did not have such opportunities).
In 2003-2004, the Dominican Republic’s Gini coefficient peaked at 52.1%. Thereafter, it continued its downward trend, reaching 37% in 2022, which is undoubtedly a positive signal for investors.
Graph comparing the Gini coefficient in Spain and the Dominican Republic
- Labor market
In terms of the labor market situation, described by the unemployment rate, Spain fares worse than the Dominican Republic.
For 2023, the rate was 12,9% in Spain and only 5.5% in the Dominican Republic.
A rising unemployment rate can generate negative consequences for a country’s economy, including a decline in demand for goods and services, which also affects the operation of businesses.
Chart comparing unemployment rates in Spain and the Dominican Republic
What to choose?
Which country should an investor choose if they were to consider only the economic situation of the two options? The answer, as always, depends on the goals of the person planning to buy real estate. The Gini coefficient and inflation for the last period presented a similar picture in both countries. Economically, Spain still leads over the Dominican Republic with a higher GDP per capita, which may be a safer option for risk-averse investors due to its more stable economic environment. However, this stability might limit the potential for high returns. On the other hand, investors who seek higher returns and are comfortable with higher risk might consider the Dominican Republic. As an emerging market, it offers the potential for greater investment returns.
In future posts we will look at other aspects of both countries, including the cost of real estate and infrastructure. Follow our blog to stay up to date!
[1] O. Williams, O.S. Adedeji, Inflation Dynamics in the Dominican Republic, 2004
The text has been prepared by Zuzanna Szczygłowska.
