Linkages and Leakages: Industrial Tracking in an Enclave Economy

The study of export-led industrialization in an enclave economy comes at the juncture of two long-standing controversies concerning developing areas. The first arises from the difficulties of poor countries in industrializing from a current comparative advantage in primary commodities, despite buoyant earnings of foreign exchange. The second turns inward and, looking away from trade policy, seeks the key to industrial development in greater interaction between domestically oriented sectors, rather than in greater export earnings. This paper is an analysis of the structural changes which have occurred during the industrialization of one country, Puerto Rico. Our objective is to study the apparent success which that growing economy has had in the simultaneous creation of both linkages between local sectors and leakages from those sectors to the world economy, in the creation of new industries and the displacement of others. We begin in Section I by reviewing briefly the broad developmental issues which revolve around the two controversies. In Section II, we examine the case history of Puerto Rico in the context of its steady and successful growth and its experience as a representative of a class of tradedependent, densely populated economies, similar to many small economies which are becoming integrated into the larger industrial metropolises. In order to evaluate Puerto Rico's growth in the context of the broader developmental issues, we propose in the third section a general sectoral * This research has been supported by grants from the Manpower Administration of the U.S. Department of Labor, the National Science Foundation and the National Bureau of Economic Research. The views reported here are in no way reflections on or of these agencies.