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Case study Unit 4 ECON4 - Economics: Development Economics
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A detailed case study on why Puerto Rico struggles to achieve economic development.
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Puerto Rico’s struggle to achieve economic developmentIn 2020, Puerto Rico found itself experiencing the worst economic crisis following the impacts of
Hurricane Maria that devastated a suffering economy. Puerto Rico has historically been a victim of
huge debts due to failing economic policies, outdated infrastructure such as the electrical gris system
and the loss of tax revenue from the consequences of many Puerto Ricans moving to the mainland.
Although Puerto Rican and US governments keep attempting to economically develop the island by
expanding it’s tourist sector and boosting infrastructure, many factors have prohibited Puerto Rico to
successfully move into a high level of development.
Factors which hinder growth and development in the nation:
Unfortunately, the geographical location of Puerto Rico will always be a hindering factor regarding
the country’s development. With the island being prone to experiencing hurricanes, the economic
recovery that has to be implemented every time a hurricane strikes severely damages the economy
and limits the amount of development the country is able to undertake.
Hurricane Maria:
One of the major examples of a hurricane which had a devastating effect on Puerto Rico’s economy
is the category 5 Hurricane Maria which struck the island on September 20th 2017 creating $90.9
billion dollars worth of damages, impacting the lives of residents, businesses and the government’s
economic development that heavily relied on commerce and tourism. As a result of the lack of
electricity, communication, medical supplies and transportation, Puerto Rico saw a population
reduction of 8% with approximately 3000 citizens losing their lives because of the hurricane and an
estimated 3 million inhabitants migrating.
Expectedly, Puerto Rico did not have the capacity to respond like the City of Houston did when
Hurricane Harvey made landfall because of the island’s economic situation which meant the country
fell into the worst economic crisis in history. To make matters worse, Puerto Rico was still recovering
from a mid 2005 economic crisis and the island owed $74 billion including $49 billion in public sector
pension liabilities and $60.7 billion owed by public corporations.
Why Puerto Rico is prone to economic crises:
1. Federal policies
Medicaid funding is capped lower for Puerto Rico than it is in the US putting a huge burden
on the island’s healthcare system.
In 2018, there were 3.4 million residents living in Puerto Rico at the time and 80% of those
were on government provided medical insurance.
2. The government bureaucracy
The government proposed an austerity plan for Puerto Rico that projected economic
contraction through 2024 which would deepen the economic crisis by declining incomes,
private spending, business sales and diminishing a tax base for servicing debt.
3. Job crisis
Between 2008 and 2017, the number of people employed had fallen by 10%.
4. Puerto Rico’s population loss
, Between 2006 and 2017, the population dropped from 3.8 million to 3.4 million.
5. The economic policies
Many of these cripple the local economy
The 1920 Jones Act prohibits the free trade with foreign countries which makes goods more
expensive than what US citizens pay stateside and granted US citizenship to Puerto Ricans.
o A delayed response from President Trump after Hurricane Maria left many Puerto
Ricans wondering if they could even call themselves US citizens
Theoretical Frameworks of development which the nation is a good example of:
Social capital theory:
Social capital theory is a multi dimensional term used to describe the development of society in
various fields such as business, economics, education, sociology, anthropology and political since but
despite many studies, a definition has not been agreed upon. Social capital has been used to
describe a societal context that includes the norms, attitudes and values among social networks that
contribute to society’s economic and social development. However, the theory has been hugely
criticised for being poorly defined and conceptualised due to it being multi dimensional with each
dimension contributing to the meaning of social capital.
Social capital in Puerto Rico:
Social capital can be found in cities like San Juan with parks and public spaces playing a fundamental
role in developing the economy and recovery after major hurricanes like Maria. Following the
impacts of hurricanes such as Maria, the government believed public parks for two purposes: to help
promote economic development and to create community and sustainable development such as
design and planning that protects from climate change.
Parks were first advocated during the early 20th century by city mayors who understood the
importance parks played in the economic development in cities by bringing a range of people
together in unity and attracted visitors from other cities and countries. Cities that have nice parks
show the most progress in social improvements and economic growth. In San Juan and Puerto Rico,
sandy urban beaches, cobblestone streets in old city towns and open air markets are examples of
public spaces that have attracted visitors improving tourism and the overall economy. Though
dimensions of social capital such as trust, effective communication, community involvement and
cooperation networks, local tourism can be increased in a community which also improves economic
development. Walkable environments was shown to be important in creating social capital in Puerto
Rican neighbourhoods with research showing that residents who live in active and walkable
neighbourhoods have more opportunities to create social capital than cities with poor walking
environments and have more ties to the community during times of need. Likewise, cities with strong
public transportation, such as San Juan’s Tren Urbano rapid transit and subway systems, are also
better at improving social capital than car orientated cities.
Successful ways of promoting growth and development in the nation
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