Economic Consequences of Statehood for Puerto Rico - A General Equilibrium Analysis

It has been quite some time that Puerto Ricans have been debating the status issue. Put simply, it is the issue of appropriate political arrangement between the island and the mainland USA. There are basically three status options to consider, namely (a) statehood, (b) commonwealth, and (c) independence. The question of right political status is indeed a difficult and complicated question. It has many facets: political, economic, cultural, etc. It is therefore no wonder that, despite several referendums, no broad agreement on the status issue has yet emerged. Among different dimensions of the status question, the one that is of foremost importance is economic. It is also possible to be more objective with regard to the economic aspect than with regard to other aspects. Hence, if agreement is possible with regard to any particular aspect of the status issue, it should be regarding the economic aspect. Agreement on the economic aspect may also lead to agreement on other aspects of the status debate. This provides the motivation for this paper. It hopes to contribute to a better understanding of the economic consequences of statehood for Puerto Rico. In this paper, we carry the study of economic consequences of statehood for the Puerto Rican economy one step forward. In order to do so, we construct a computable general equilibrium (CGE) model for the Puerto Rican economy and use this model to study the question. Our broad conclusion is that the results presented by CBO were bleaker than truly warranted.