The Study of Economic Development in Puerto Rico
Concern with Puerto Rico’s slow pace of economic development after being a success story between 1948 and 1965 has produced a steady stream of studies on the subject over the past decades. In collaboration with Estudios Tecnicos Inc, the Oversight Board published an annotated bibliography of the most significant of these studies and economic development plans.
It is worth noting that every government administration, since that of Rafael Hernández Colón in 1973-77, has authored or commissioned at least one major report or study seeking to identify the obstacles or limitations holding back economic progress, and to lay down a blueprint for swifter economic and social transformation. U.S. government agencies have also contributed to the wealth of studies on Puerto Rico’s economy (such as the Kreps Report of 1977), as have various private sector organizations, the labor movement and many academic economists and professional consultants.
The bibliography illustrates there is no shortage of studies documenting what should be done to foster economic development in Puerto Rico. The problem is clearly one of execution, and continuity in implementation across government administrations.
The collection of studies may serve as a road map for future government administrations, but most importantly by highlighting that we need to focus on actually executing development plans, instead of simply publishing them.
Below we include a selection of some of these studies and plans under five major headings: 1) Reports on Fiscal and Economic Policy 2) Reports on Development Strategies; 3) Reports on Industry Specific Analyses 4) Reports on Economic Integration and, 5) Reports on the minimum wage issue.
Article:
UPR, Río Piedras.
Author: Tobin, J., Donaldson, W., Gordon, K., Lewis, W. & Robbins, S. (1976).
[The author presented an analysis of the amount of investment in productive capital associated with the growth of economic activity and employment in Puerto Rico and its internal and external sources of finance. The study presented a chronological and narrative analysis of several economic and financial variables using tables, and time series graphs. Some data were extrapolated using linear trends.]
Article:
Informe final al Hon. Carlos Romero Barceló, Gobernador de Puerto Rico.
Author: Comité Asesor Sobre Política Económica.
(1984).
[The Committee was charged with developing policy initiatives to stimulate economic growth in a difficult economic context. Was composed of business and academic representatives, met on several occasions and staff carried out interviews with industrial leaders as well as government officials. This resulted in recommendations for the various sectors generally arrived at in an informal manner.]
Article:
Author: Consejo de Productividad Económica, Oficina del Gobernador. (1994).
[The New Economic Development Model (NEDM) sought to devise approaches to economic development to substitute for tax driven incentives which had characterized previous efforts. In many ways, and without indicating explicitly that this was the theoretical framework, the NEDM used an endogenous growth theory conceptual framework. The rationale for developing the NEDM was the poor performance of the economy over the previous fifteen years, when growth rates had decreased substantially, a changed competitive environment and increasing social tensions arising from a poorly performing economy.
The study set forth the guidelines for decision-making and the objectives and strategies that will provide the framework for decisions in the various sectors. To the extent that the external context changes, modifications will be required. Thus, it should be considered a flexible instrument for policymaking.” “The development of the NEDM took place over a one year period and involved meetings with a substantial number of private sector individuals, workshops with government officials and meeting of the Productivity Council, from which a working group was designated made up of government and private sector representatives. The Planning Board was mainly responsible for the drafting of the report, with support from other agencies. Its Chairperson acted as Coordinator.
Benchmarking with other countries and states was used to gather information on successful experiences.The NEDM’s structure includes objectives, guiding principles, strategies for eight different areas and short-term measures.”]
Article:
Citizens Educational Foundation
Author: Hexner, J. T., & Jenkins, G. (1998).
[The major objective of this study by a private consultant and a Harvard Law professor and member of the HIID was to explore the implications of Puerto Rico’s status on its economic wellbeing. It was commissioned by an entity created to support Puerto Rico’s statehood movement. The rationale for the study is that, according to the authors, the status issue has been looked at as a political and not an economic issue. “The study focuses on the impact which statehood would have on the Puerto Rican economy by attempting to measure its impact on such variables as tax revenues, federal transfer payments, wages and salaries and overall economic growth. Hawaii is used as a benchmark to support the conclusion that statehood will generate convergence with the US economy.
The authors utilize convergence growth theory to reach their conclusion that full integration into the US economy will lead to higher growth rates: “”As one economy begins to converge toward another wealthier economy, it will initially experience higher growth rates as it “”catches up”” and lessens the gap in per capita income levels between itself and the more developed economy.”” They also indicate that: “When a territory becomes a state, its economy becomes much more integrated with the other states than it could have been as a territory. Thus, it can expect additional economic expansion on the basis of becoming a state.”]
Article:
Author: Martínez, F. (ed). (1999).
[The President of the University of Puerto Rico, Dr. Norman Maldonado, organized the project on Puerto Rico’s economic future with the intention of integrating the University in the discussion of Puerto Rico’s economic and social policies. The main objective was to involve economics and social science professors in the analysis of Puerto Rico’s economic situation and the policy initiatives required.
The publication includes a series of articles on three major areas: the economic context, the social dimension of development and local impacts. A group of sixteen university professors was brought together for the purpose of putting together the project. Several working sessions were held to discuss key issues that needed attention and tasks were assigned to each. The result was the preparation of twelve essays dealing with topics such as: the economic context, technology policy, the information infrastructure, environmental issues, poverty and inequality, gender and work, migration, public health, financial flows, urbanization, industrial policy and the cooperative sector.
Each essay developed its own approach to the subject, which characterizes the project. It was a serious intent of bringing a multi-disciplinary focus to bear on each subject. The project also aimed at bringing together academics for the various social science disciplines who typically work individually. The project incorporates an essay which evaluates many previously prepared studies on Puerto Rico’s economy. This essay provided the background for the work done by the group.
The results of the project were discussed in a few workshops in the University and were publicly presented to the Governor, and the public at large, at a conference sponsored by the President of the University in February 1997. A subsequent project was undertaken by the group dealing with the issue of poverty. This was scheduled for publication in early 2003.]
Article:
San Juan, P.R.
Author: Consejo Asesor Económico del Gobernador. (1989).
[The principal objective of the report was to design a new development strategy based on the recognition that the original model used in the fifties and sixties was no longer functional with global economic conditions. A new approach based on endogenous growth concerns was required for positioning Puerto Rico as an effective competitor. The approach followed was based on four phases: defining development objectives, elaborating a vision for Puerto Rico’s economic development, identifying strategies that would achieve the vision and recommending specific instruments to implement the strategies.]
Article:
Author: Bryce, M. (1977).
[The study has as its principal objective the drafting of recommendations that would make possible the development of import substitution industries in Puerto Rico. No specific recommendations are made in terms of activities. Rather, the report drafts the parameters that should guide the framing of the import substitution policy. The study does not apply any analytical techniques and there is no well-defined methodological approach. It is rather informal in the way it reaches its conclusions and recommendations. There are no references and no attempt to empirically test the propositions made.]
Article:
International Regional Science Review, Vol. 4, No.1., pages 1-22
Author: Goldsmith, W. W., & Vietorisz, T. (1979).
[This article is a summary of a project undertaken by the two authors to provide Puerto Rico with an alternative economic development strategy in view of the stagnation that became evident after 1970. The paper and the project from which it is derived “proposes a policy for the development of autonomous exports and import substitution entailing moderate structural reorganization of the economy. However, this policy, …, is fraught with difficulty. Therefore, the development of a parallel economy is proposed to reduce unemployment, increase productivity, and encourage a restructuring of the economy. The authors make a detailed inventory of the constraints facing Puerto Rico’s economy in the seventies, including the following: decline in private external investment, wage increases, falling exports for the Island’s labor intensive industries faced with Asian competition, an intractable government labor force, lower ratios of private to public investment and investment to GNP. The above lead to high unemployment rates (20% in 1974), severe poverty and faltering GNP growth.
Part of the report is an evaluation of the Tobin Report, which is severely criticized by the authors, who claim the its recommendations were: inconsistent with the objective of attracting investment; impractical because they did not take into account the political realities of the Island, particularly the influence of government employees, and regressive, in that the recommendations would impact the lower income groups in a disproportionate manner. Other than a detailed recounting of the difficulties facing the economy and the critique of the Tobin Report, the authors did not utilize any analytical techniques to sustain their arguments and recommendations.]
Article:
Author: Private Sector Coalition
Díaz M. (2009).
[The Private Sector Coalition prepared the report as a means of influencing economic policymaking. The Coalition brought together some 35 private sector organizations. It was produced by local economists and included a thorough review of previous studies and other experiences. Much of the content was a result of extensive meetings and interviews with key business leaders.]
Article:
Author: Comisión sobre el futuro económico de Puerto Rico. (2003).
[The study has as its principal objective the drafting of recommendations that would make possible the development of import substitution industries in Puerto Rico. No specific recommendations are made in terms of activities. Rather, the report drafts the parameters that should guide the framing of the import substitution policy. The study does not apply any analytical techniques and there is no well-defined methodological approach. It is rather informal in the way it reaches its conclusions and recommendations. There are no references and no attempt to empirically test the propositions made.]
Article:
Prepared by the Puerto Rico 2025 Steering Committee.
Author: A.T. Kearney Inc., Department of Economic Development and Comerce, Junta de Planificación, La Fortaleza, H. Calero Consulting Group and the London School of Economics, (2004)
[This report was sponsored by Governor Sila Calderón and was coordinated by a private-public committee created for that purpose. The Report was produced by A.T. Kearney with support from local professionals. Aside from referring to other experiences, the report was based on extensive meetings with stakeholders. A panel was created with mainland economists that reacted to an initial draft.]
Article:
Author: Estudios Técnicos, Inc. (2016).
[The Department of Economic Development and Commerce sponsored this report as an exercise in long range planning. The report includes detailed scenarios of major economic aggregates such as GNP, Consumption, Investment, public expenditures, employment, and population. It also included a detailed assessment of both changes in the externa context and of successful reconstruction experiences of countries and regions. In addition to detailed benchmarking with countries and regions that had experienced conditions like Puerto Rico’s, the study used econometric techniques to generate scenarios for macroeconomic aggregates and population.]
Article:
Author: Boston Consulting Group (2014).
[The seven key strategies incorporated in the report include mitigating the impact of Law 154 that had been recently adopted, establish a specific specialized unit to deal with the pharmaceutical industry, identify manufacturing sector needs, mobilize private financing for the reuse of abandoned industrial properties, consider generics and contract manufacturing as options for the pharmaceutical industry. The study referred to other experiences and relied on an assessment of other previous studies on Puerto Rico’s economy. It also made extensive use of interviews. Impact estimates were made using simple econometric techniques.]
Article:
Government Bank for Puerto Rico.
Author: Krueger, A. O., Teja, R., & Wolfe, A. (2015).
[This report was prepared for the Puerto Rico Government Development Bank at the request of its legal advisors. The report has become known as the Krueger Report since its lead author is Anne Krueger. The study format follows that of other reports by Anne Krueger for debt restructuring purposes. Econometric models were used.]
Article:
Puerto Rico’s Economy.
Author: Federal Reserve Bank of New York. (2012).
[The report, an initiative from the Bank, presents an assessment of Puerto Rico’s economy, how its progress has stalled, the reasons why, and how its competitiveness has eroded over time. It attempts to present a set of policy recommendations geared to improve the island’s competitiveness. Through an analysis of historical and recent economic data, and of indicators related to measuring competitiveness, it evaluates the major challenges faced by policymakers in Puerto Rico, in order to provide the basis for the recommendations.]
Article:
Author: Ruiz, A. (1982).
[The purpose of this study was to evaluate the economic development experience of Puerto Rico. Was apply an empirical evaluation using time series analysis, an econometric model, and input-output matrices.
Conclusions: Interindustry linkages have not been created for a real economic development; the lack of local integration among the diverse economic sectors has kept employment, income, and production multipliers, at low levels; transnational companies have accumulated billions of dollars in tax exempt earnings, little of which is reinvested locally in physical capital.
Puerto Rico is of great value for North American companies; the existent pattern of development in Puerto Rico should not be emulated by other developing countries.]
Article:
Model of Development.
John Hopkins University Press.
Author: Weisskoff, R. (1985).
[This study provides an analytical description of Puerto Rico’s economic development model (as it was in the early 1980s); to build a formal mathematical representation of the model; and to simulate scenarios of alternate routes for Puerto Rico’s future economic development. Try to understand the roles of tax-exempt manufacturing firms and the food stamps program in Puerto Rico’s economy, with special reference to their effects on economic growth and income distribution. Weisskoff developed a model based on input-output matrices expanded with data on the size distributions of income to families by sectors and the patterns of consumption by income classes. Besides developing his model, he carried out a careful study of written materials and statistical information on the Puerto Rico economy. Using his model, Weisskoff examined various scenarios, including an import substitution scenario which he favors over the others.]
Article:
Author: González, M. (1995).
[This study presented a brief report on Puerto Rico’s past and present, as well as perspectives about its economic development, highlighting the role of manufacturing as the main instrument. A descriptive and evaluative approach has been utilized in the appraisal of the country’s performance. The approach is chronological, including quantitative information as support.]
Article:
Author: Dietz, J. (1986).
[The book’s objective is to rewrite and reinterpret Puerto Rico’s economic history. At the time the book was published there was no economic history of the Island covering the period between the seventeenth century and post Second World War Puerto Rico. He seeks to provide an integrated approach to understanding Puerto Rico’s evolution by framing recent development in the context of the world capitalist economy, extending back to its beginnings in the seventeenth century. The book was quite influential in academic circles.
The book is based primarily on secondary sources, particularly in the early periods covered, although the author did primary research on the later periods. It is a historical recounting of the Island’s evolution for the most part based on Marxist approaches. For this review, the most relevant part of the book is the final chapter in which the author deals with what he calls the failed development policies of the fifties and subsequent decades. Again, there is no specific methodological approach, except that his conclusions derive from an ideological perspective.]
Article:
Author: Curet Cuevas, E. (1986).
[The study tries to explain and evaluate the nature and causal factors of the rapid rate of economic growth which Puerto Rico experienced from 1950 to 1974, and the slowdown observed since then. An econometric model was built, consisting in a multiple regression with the GDP annual growth rate as a dependent variable. The explanatory variables are the real annual growth rate of labor inputs, domestic capital inputs, external capital flows, exports, tourism, and food stamps, a labor cost differential between Puerto Rico and the U.S., and the average value of crude oil imports.
The investigation was conducted in the context of contemporary development theories and taking into consideration the Latin America development experience. There was also a review of the economic development literature since the Second World War to bring into focus the theories and policies that are relevant to the study.”]
Article
“Is There a Minimum Wage Biting in Puerto Rico? Updating the Debate”. Industrial Relations Journal, Vol. 47, Issue 5-6, pp. 513-529.
Author: Caraballo-Cueto, J. (2016).
Study[The study evaluates the repercussions on employment in Puerto Rico of the latest increases in the minimum wage (made between 2007 and 2009). Analyze the employment consequences of last increase of the federal minimum wage with different econometric techniques: multiple panel regressions to estimate correlation between the Kaitz ratio and private employment; a segmented panel regression to account for a regime change created by the new introduction of the new minimum wage in 2007, and for the wage levels of different sectors; estimated an OLS for each of the seven minimum wage sectors.]
Article
"Minimum Wage in Puerto Rico: Textbook Case of a Wage Floor?" NBER, vol. 3759. National Bureau of Economic Research.
Author: Freeman, A. C., & Freeman, R. B. (1991).
Study[The study examines the impact of the U.S. minimum wage on Puerto Rico’s employment from 1951 to 1987, While the Fair Labor Standards Act (FLSA) established a minimum wage of $0.35, Puerto Rico did not reach the U.S. minimum wage until 1983. Prior to this, coverage was relatively low: 29% compared to 43% in the U.S.; however, after Congress applied the U.S. minimum to Puerto Rico, the coverage weighted minimum average earnings ratio rose. Approach: applied basic time series model, AR(1), to the island’s aggregate employment-population rate; estimated a cross-section time series model linking industry employment to industry minima”]
Article
The effect of the minimum wage when it really bites: A reexamination of the evidence from Puerto Rico (No. w4757). National Bureau of Economic Research.
Author: Krueger, A. B. (1994).
Study[The study reexamines the minimum wage evidence in Puerto Rico, analyzing various studies on the topic and their conclusions. Conclusions: Analysis of Reynolds and Gregory’s theoretical study; utilize Castillo-Freeman and Freeman’s data (42 industries from 1956-1987); to estimate the causality of minimum wages in Puerto Rico, included a contemporaneous minimum wage index, two lags of the index, and two leads.”]
Article
The Migratory Impact of Minimum Wage Legislation: Puerto Rico, 1970–1987. International Migration Review, 27(4), 772-795.
Author: Santiago, C. E. (1993).
Study[The study examines the impact of minimum wage setting on labor migration for the case of Puerto Rico. Applied a time series model (ARIMA) to determine whether a temporal relationship exists between minimum wages and the net migration rate in Puerto Rico between 1970 and 1987.
Conclusions: The coefficients of the minimum wage variables were positive, suggesting that minimum wage hikes in Puerto Rico reduced net emigration to the United States; estimates of minimum wage elasticities of employment and unemployment suggest that the impact of the minimum wage on the probability of finding covered sector employment is inelastic; minimum wage policies can influence the direction of labor migration.]
Article
Minimum wages, public transfers, and development in Puerto Rico., unpublished manuscript.
Author: Sotomayor, O. (2016).
Study