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

Jose Caraballo-Cueto () and Lara Juan
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Lara Juan: University of Puerto Rico, Department of Economics, San Juan, Puerto Rico

Journal of Globalization and Development, 2017, vol. 8, issue 2, 11

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.

Keywords: Deindustrialization; external debt; Puerto Rico (search for similar items in EconPapers)
JEL-codes: E6 H6 R5 (search for similar items in EconPapers)
Date: 2017
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