The Economy of Puerto Rico

Before the 1940’s, Puerto Rico was an agricultural economy, dominated primarily by sugar, tobacco and coffee products. Agriculture represented 33.7% of the total net income, while manufacturing had only 12.8%. It slowly changed into a thriving, modern industrial and services oriented economy. The transition towards industrialization took place in a period of more than four decades. During this period, structural changes have occurred. The manufacturing sector slowly changed from labor intensive into capital intensive industries. During the last ten years, this structural change intensified with the development of knowledge intensive industries such as biotechnology. In fact, in 2002, the agriculture composed only 1% of the total whereas manufacturing made up 45.7% of the country’s total net income. In addition, the financial sector, which is the second largest sector, comprised 15% of the total.

Since the establishment of the commonwealth, Puerto Rico has enjoyed fiscal autonomy with respect to the United States, which means that the residents do not pay federal income taxes, giving the local authorities the discretion to design tax incentives in order to attract foreign investments. This major tool has allowed different administrations to develop the manufacturing and services sectors of the economy in a short span of time. This also helped in the rise of new businesses and entrepreneurs due to the implementation of an efficient system of regulations and permits.

Aside from the fiscal autonomy, the country boasts of its highly developed physical infrastructure and human capital. It has highly developed highways, ports and airports which permit faster movement of merchandise in and out of the island. It also has a state-of-the-art communication network. It’s location in the Caribbean makes it a strategic place to develop an even larger infrastructure for a trans-shipment port with its respective value added zones. In terms of human capital, it has a highly sophisticated and bilingual work force, ready to face the ever-changing economic environment.