Enhancing the economy growth of Puerto Rico Calculating the amount of fixed investment needed to boost economic growth Prepared by José I Alameda Lozada.

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Presentation transcript:

Enhancing the economy growth of Puerto Rico Calculating the amount of fixed investment needed to boost economic growth Prepared by José I Alameda Lozada Ph.D. Economist and Professor at the UPR, Mayaguez

Main nominal GNP’s components GNP = Gross National Product, C = Personal Consumption G = Government Expenditures I = Gross Domestic Investment X= Sales to the rest of the world or Exports M = Purchases from the rest of the world or Imports GNP = C + G + I + (X –M)

Puerto Rico’s GNP Components, nominal prices

Main assumption of the model Re-grouping the components: GNP = (C + G) + (X –M) + I Fixed average growth rate Fixed amount Target Variable growth rate

Main assumptions to forecast GNP Assumptions under this model: Inflation rate = 2% Fixed average growth rate Fixed amount

Investment Requirement to enhance economic growth Target variable = Gross Fixed Investment I = Change inventories + Gross Fixed Investment Changes inventories is assumed at 260 millions during Gross Fixed Investment is the target. It means construction of tangible plant building, machinery and equipment, and infrastructure.

For an annual real growth rate of 4% Items avg grwt rate GNP, nominal million $6.00%74,98579,48484,25389,30894,667100,347106,367 Impl price deflactor2014= GNP real 2014 prices, millions$74,985$77,925$81,012$84,253$87,654$91,224$94,971 GNP real rate of growth, annual2014 prices ND3.9%4.0% 4.1%

Puerto Rico’s investment requirements TOTAL INVESTMENT NEEDED FOR A 4% REAL GROWTH RATE DURING PERIOD IS $143,500 MILLIONS

For an annual real growth rate of 5% Items avg grwt rate GNP, nominal million $7.00%75,69280,99186,66092,72699,217106,162113,594 Impl price deflactor2014= GNP real 2014 prices, millions$75,692$79,403$83,327$87,477$91,868$96,511$101,423 GNP real rate of growth, annual2014 prices 4.9% 5.0% 5.1%

For an annual real growth rate of 5% TOTAL INVESTMENT NEEDED FOR A 5% REAL GROWTH RATE DURING PERIOD IS $169,111 MILLIONS

Scenarios for different real growth rates Real GNP Growth: Invesment Requirements: a/ 2%$95,146 3%118,800 4%143,500 5%169,100 a/ millions of dollars In order to enhance steady-state economic growth process, the investment requirements in Puerto Rico are really high. Then, local authorities need to re- focus the source of investment or diversify countries portfolio.