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Deindustrialization and Unsustainable Debt in Middle-Income Countries: The Case of Puerto Rico

Author

Listed:
  • Caraballo-Cueto Jose

    (University of Puerto Rico, Business Administration, 205, Calle Antonio R. Barceló,Cayey, Puerto Rico)

  • Lara Juan

    (University of Puerto Rico, Department of Economics, San Juan, Puerto Rico)

Abstract

Puerto Rico recently became the largest bankruptcy case in the history of the U.S. municipal bond market. This debt crisis has not been the subject of significant scrutiny in the economic literature, though many researchers focus on case studies, such as Greece and Argentina, to analyze a country’s indebtedness. The underlying economic factors that influence unsustainable debt in upper middle-income countries are generally understudied. We attempted to contribute to filling these gaps in the related literature. Using econometric analysis, we found that Puerto Rico’s government indebtedness is, to a large extent, connected to a sharp decrease in manufacturing employment (i.e. deindustrialization) suffered by this economy, and weak evidence that it was caused by an excessive government payroll or overgenerous federal programs. In light of our empirical results, we discussed how the consequences of deindustrialization ultimately led to increase government borrowing.

Suggested Citation

  • Caraballo-Cueto Jose & Lara Juan, 2017. "Deindustrialization and Unsustainable Debt in Middle-Income Countries: The Case of Puerto Rico," Journal of Globalization and Development, De Gruyter, vol. 8(2), pages 1-11, December.
  • Handle: RePEc:bpj:globdv:v:8:y:2018:i:2:p:11:n:1
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    Citations

    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. How the Triple Tax Exemption on Puerto Rico’s Bonds Financed Its Territorial Status—and Helped Spark Its Debt Crisis
      by Evaluz Cotto-Quijano in Pro-Market on 2018-09-11 16:45:18

    More about this item

    Keywords

    Deindustrialization; external debt; Puerto Rico;

    JEL classification:

    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • H6 - Public Economics - - National Budget, Deficit, and Debt
    • R5 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis

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