1. 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

2. 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)

3. Puerto Rico’s GNP Components, nominal prices

4. 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

5. Main assumptions to forecast GNP 2014- 2020 Assumptions under this model: Inflation rate = 2% Fixed average growth rate Fixed amount

6. 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 2014-2020. Gross Fixed Investment is the target. It means construction of tangible plant building, machinery and equipment, and infrastructure.

7. For an annual real growth rate of 4% Items avg grwt rate2014201520162017201820192020 GNP, nominal million $6.00%74,98579,48484,25389,30894,667100,347106,367 Impl price deflactor2014=100100.0102.0104.0106.0108.0110.0112.0 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%

8. Puerto Rico’s investment requirements TOTAL INVESTMENT NEEDED FOR A 4% REAL GROWTH RATE DURING PERIOD 2014-2020 IS $143,500 MILLIONS

9. For an annual real growth rate of 5% Items avg grwt rate2014201520162017201820192020 GNP, nominal million $7.00%75,69280,99186,66092,72699,217106,162113,594 Impl price deflactor2014=100100.0102.0104.0106.0108.0110.0112.0 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%

10. For an annual real growth rate of 5% TOTAL INVESTMENT NEEDED FOR A 5% REAL GROWTH RATE DURING PERIOD 2014-2020 IS $169,111 MILLIONS

11. Scenarios for different real growth rates Real GNP Growth: 2014-2020Invesment Requirements: 2014-2020 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.