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GTAP Resource #6854

"Economic consequences of cabotage restrictions: The effect of the Jones Act on Puerto Rico"
by Hillberry, Russell and Manuel Jimenez

We estimate the economic burden placed on Puerto Rico (PR) by the “Jones Act,” a US law that protects the US domestic maritime shipping market from foreign competition. We show that the supply of freight shipping to PR that satisfies Jones Act requirements lacks capacity for hauling general cargo and bulk commodities. In an empirical gravity framework, PR’s imports of final goods reveal relatively greater substitution towards non-US sources among products that tend a) to be shipped by sea, b) to be physically heavy, c) not to be moved in containers. We use a structural gravity model and those product characteristics to estimate the tariff-equivalent trade costs the Jones Act imposes on US shipments of final goods. We use these estimates to calculate the compensating variation of Jones Act removal. Our preferred estimates suggest that the cost of final expenditure in PR would be $1.4 billion (about 1.3%) lower per year without the Jones Act. The estimated annual burden on private consumption in PR is $691 million (1.2%, or approximately $203 per citizen). Ours are conservative estimates, for several reasons. Most importantly, we only consider effects of the Jones Act on purchases by final demand. The effects of the JA on upstream goods are not clearly visible in our estimates, which may reflect the evolution of the Puerto Rican industrial structure in ways that limit its reliance on inputs that are purchased from the U.S. and typically shipped by sea.

Resource Details (Export Citation) GTAP Keywords
Category: 2023 Conference Paper
Status: Not published
By/In: Presented during the 26th Annual Conference on Global Economic Analysis (Bordeaux, France)
Date: 2022
Created: Hillberry, R. (4/11/2023)
Updated: Hillberry, R. (4/11/2023)
Visits: 417
- Domestic policy analysis
- Transportation
- Non-Tariff barriers
- Supply chains
- Econometric methods
- Caribbean
- North America

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Posted by: Hillberry, Russell   4/11/2023 5:48:00 PM
Paper submission for Bordeaux conference.