Regional Incentives and Industrial Location in Puerto Rico

This study uses nested logit to estimate the influence of industrial incentives on the location of manufacturing plants in Puerto Rico. Puerto Rican laws grant generous tax exemptions and provide other incentives for investments in less developed, peripheral regions of the island. Focusing on Puerto Rico allowed us to isolate and test location factors in a closed environment where 76 municipalities received a development zone designation and competed directly against one another for new plants. Simulations indicated that the regional incentive policy reallocated relatively few of the greenfield investments from the congested core to the periphery of the island.