Foreign Direct Investment and Manufacturing Growth: The Case of Tax Incentives in Puerto Rico

The aim of this paper was to determine the effects that the end of tax incentive for U.S. firms operating in Puerto Rico had on the growth trend of the manufacturing sector in the island. It was found evidence that the termination of these incentives diminished manufacturing employment growth trend. This reduction was transmitted to Puerto Rico’s aggregate real output. Real GNP declined at an average rate of 1.7% per year from 2007 to 2015. Thus, it may be argued that foreign capital may stimulate economic growth in the short run, but that increase may be artificial without local means to be maintained in the long run.