This paper presents a model of capital accumulation in a small and open economy, a model consisting of an investment equation and a profit equation. During the late 1960s and early 1970s, the erosion of the postwar social structure of accumulation, as reflected in declining profit rates, led to the current economic crisis. Econometric estimation of the model confirms the critical importance of lower profit-rate differentials in inducing a lower reinvestment of foreign capital, and it shows how the deterioration of the postwar social structure of accumulation has caused the decline of long-term profitability in Puerto Rico.
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