General Impact Multiplier Analysis of Puerto Rico's Economy, 1965 to 1976

Abstract

This paper illustrates the use of general impact multiplier analysis for studying the apparent causes of Puerto Rico's recent economic difficulties. General impact multiplier analysis treats an economic system holistically and dynamically, and it therefore can be considered a better tool for this purpose than the more familiar econometric model. A simple model of the Puerto Rican economy is used to stimulate multipliers in order to examine the impact of important exogenous variables on the operations of the island's economy. Conclusions are drawn about which exogenous variables are most significant in explaining Puerto Rico's aggregate consumption, investment, commodity imports, money market imports, exports, and income.