Economic Consequences of Cabotage Restrictions: The Effect of the Jones Act on Puerto Rico

Russell Hillberry and Manuel Felipe Cases Jimenez

No 10780, Policy Research Working Paper Series from The World Bank

Abstract: This paper studies the consequences of a U.S. cabotage law for Puerto Rico (PR). Data on ship arrivals in PR show that the fleet of U.S. vessels that call there lacks capacity for carrying non-containerized freight. Empirical estimation using trade data shows that PR’s imports of sea-shipped final products are biased against U.S. mainland sources. This bias is strongest for heavy products and products not typically shipped in containers. Among upstream products, a strong bias against imports of sea-shipped products applies to all sources. Estimated tariff-equivalent costs among final products imply static annual welfare losses of 1.1 percent of household consumption ($203 per person). The same tariff-equivalent cost estimates imply that the law raises the cost of investment in PR by 3.0 percent. The observed bias against sea-shipped inputs in PR’s imports may result from long-run industry location decisions that have been influenced by the law's presence.

Date: 2024-05-21
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