Puerto Rico’s Economic Challenge

Puerto Rico presents a puzzling economic situation. As a territory of the United States, it has many of the institutions that economists judge crucial to growth. It is one of the world’s most open economies, with free mobility of goods, services, capital, and labor to the large, prosperous U.S. market; and firms and individuals and firms who are resident in Puerto Rico are exempt from federal taxes. One might expect these conditions to pave the way for rapid economic development in Puerto Rico, with living standards converging steadily toward those enjoyed in the rest of the nation. However, since the mid 1970s, that growth has stalled. Puerto Rico’s per capita income is only about half that of the poorest U.S. state and a majority of its residents live below the U.S. poverty line.

What went wrong? Motivated by Puerto Rico’s economic dilemmas, researchers from Puerto Rico and the mainland collaborated on an extensive project led by the Center for the New Economy (CNE) and the Brookings Institution. The resulting book examines the island’s low-employment rates, comparatively small private sector, trade performance, and the effectiveness of its educational, financial and fiscal systems. Chapters also focus on the effects of key U.S. policies on the island, particularly in the areas of taxation and social transfers.

To discuss the book and recent developments in Puerto Rico, Susan Collins, Barry Bosworth and William Dickens, all Brookings senior fellows, were joined by Miguel Soto-Class from the CNE; Maria Enchautegui from the University of Puerto Rico; Steven Davis from the University of Chicago and the American Enterprise Institute for Public Policy Research (AEI); and Francisco Uriarte also of CNE.

Panel One: Economic Growth in Puerto Rico

Moderator:
Miguel Soto-Class
Center for the New Economy

Presenter:
Susan Collins
The Brookings Institution & Georgetown University

Panel Two: Why is Employment So Low?

Moderator: 
William Dickens
The Brookings Institution

Panelists: 
Maria Enchautegui, University of Puerto Rico
Steven Davis, University of Chicago & AEI

Panel Three: Options for Restoring Growth

Moderator: 
Francisco Uriarte
Center for the New Economy

Presenter: 
Barry Bosworth
The Brookings Institution