Manufacturing in Puerto Rico is a bit of an enigma. It accounts for nearly half of the Island’s GDP — but only 8% of employment. Manufacturing employs about 83,000 people on the Island. It contributes about 44% of the GDP, which is estimated to reach $127.7 billion. Manufacturing’s share of the total GDP would thus be $56.2 billion. Divide that by 83,000 workers and we see that each manufacturing worker produces, on average, $673,000 worth of revenue per year. Workers in Puerto Rico’s manufacturing sector earn an average of about $47,500 per year, roughly 16% lower than in the states, so the profit on those goods must be phenomenal.
By comparison, manufacturing is about 11% of the GDP in the United States as a whole and also provides about 11% of the jobs. The average American manufacturing worker produces about $156,500 in goods per year, a record high which is double the level of productivity in 1997. In Puerto Rico, where automation is not as extensive as in the states, the level of productivity is more than quadruple that on the mainland. The proportion of the GDP manufacturing provides in Puerto Rico is also quadruple that of the states.
Manufacturing in Puerto Rico used to rely on a tax trick called Section 936, and commentators claim that the end of Section 936 doomed manufacturing in the territory and that Puerto Rico needs a new version of that tax loophole. When it was in force, according to El Nuevo Dia, manufacturing contributed 42.5% of the economy. By 2024, long after the end of Section 936, manufacturing made up 44.21% of the GDP.
So manufacturing’s percentage of the GDP has increased since the tax loopholes for manufacturers ended and the manufacturing workers of Puerto Rico are vastly more productive than those in the states. Manufacturing is also a much larger fraction of the GDP in Puerto Rico.
If you’ve made it through all these numbers, you may feel confused. If all this were true, wouldn’t manufacturers be clamoring to build their factories in Puerto Rico, and wouldn’t Puerto Rico be very rich?
Why the numbers don’t add up
It’s not actually that Puerto Rico’s superworkers make manufacturing much more profitable than it is in the states. Puerto Rico’s GDP includes money merely attributed to the territory on paper by manufacturers. It does not circulate in the Island, because it is based on intangible assets that are developed in the states and are only in Puerto Rico on paper.
A prime example of GDP in Puerto Rico being inflated by “on paper” intangible assets is found in the pharmaceutical and medical device sectors. Major multinational corporations often assign intellectual property like drug patents or proprietary manufacturing processes to their Puerto Rican subsidiaries. They then pay the Puerto Rico subsidiaries for those assets, so that much of the profit or revenue generated from sales worldwide is technically attributed to Puerto Rico for tax reasons.
Although the company’s profits (from that intangible asset) are booked in Puerto Rico, the money itself usually circulates elsewhere—often in the U.S. mainland or global financial centers. Since corporations pay more taxes in states, they spend money on deductible expenses in the states. The “value added” by these patents or trademarks is counted in Puerto Rico’s GDP, inflating productivity statistics, but the majority of those profits do not remain or circulate in the local economy.
In addition to the cost of buildings, labor, and supplies, the physical R&D and marketing for products, or even the banking and investment activity tied to those profits, is conducted almost entirely on the mainland, but the revenues are reported under Puerto Rico for favorable tax treatment. This creates a mismatch between measured GDP and actual economic impact or local prosperity in Puerto Rico, particularly in manufacturing sectors reliant on intangible asset allocation by global firms.
What could change
One example of a new manufacturing investment in Puerto Rico that could lead to greater prosperity for the Island is Eli Lilly’s planned $1.2 billion expansion of its Lilly del Caribe manufacturing facility in Carolina, Puerto Rico. The company expects to create 1,000 construction jobs and 100 manufacturing jobs in the town. While these jobs may show the same inflated productivity as current manufacturing jobs, Carolina can use this infusion into the economy.
Construction jobs bring $1.60 into the local economy for every dollar spent, since construction workers spend their wages locally. Manufacturing jobs, which are longer-lasting than construction jobs, Bring in $2.70 for every dollar spent by the manufacturer. Workers in well-paying jobs spend their wages in retail, restaurants, and service businesses in their towns.
The drug which will be manufactured at the plant is a new oral weight loss drug. instead of drugs like Ozempic and Wegovy, which must be injected with a needle, the new Eli Lilly drug, Orforglipron, is a daily pill. The injectable weight-loss drugs have been runaway bestsellers, with millions of prescriptions. Lilly has one of these drugs, Zepbound, in their stable, and they’ve gained $3 billion in revenues from it this year. Zepbound is produced in North Carolina. With Orforglipron and their diabetes drug, Mounjaro, Lilly will have a complete offering for weight-loss drugs. Puerto Rico’s expert manufacturing workforce makes this possible.
Lilly has been in Puerto Rico for 60 years. They are not expanding to take advantage of tax deals. They did strike a tariff waiver deal with the federal government for expanding their U.S. factory instead of going offshore, but that is a benefit of being part of the United States, not a special and counter-productive tax trick. Puerto Rico has an experienced bilingual workforce, FDA-approved manufacturing facilities, and ongoing improvements in infrastructure that will in time bring logistics up to stateside levels. There is also an entrepreneurial attitude in Puerto Rico that helps with problem solving — not something that’s easy to quantify, but it can make a big difference.
Would statehood help?
Statehood will produce a level playing field for Puerto Rico. States make their own local tax decisions, so statehood will not create automatic tax changes, but all of the territories that have become states have become more prosperous, more stable, and easier to do business in as states than they were as territories.
By working to reform tax regulations and to encourage actual manufacturing investments — not just paper ones — Puerto Rico can be ready for statehood when Congress takes action.
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