Big Wins, Small Net Gains: Direct and Spillover Effects of First Industry Entries in Puerto Rico

TL;DR

This paper examines how major industry entries in Puerto Rico impact local and neighboring labor markets, revealing significant local benefits but modest regional effects once spillovers are considered.

Contribution

It introduces a novel methodological framework combining staggered-adoption difference-in-differences with spatial spillover analysis to evaluate industry entry effects.

Findings

Significant local employment and wage gains from first industry entries.

Short-term positive spillovers to neighboring areas that diminish over time.

Net regional employment effects are positive but small and uncertain.

Abstract

I study how first sizable industry entries reshape local and neighboring labor markets in Puerto Rico. Using over a decade of quarterly municipality--industry data (2014Q1--2025Q1), I identify ``first sizable entries'' as large, persistent jumps in establishments, covered employment, and wage bill, and treat these as shocks to local industry presence at the municipio--industry level. Methodologically, I combine staggered-adoption difference-in-differences estimators that are robust to heterogeneous treatment timing with an imputation-based event-study approach, and I use a doubly robust difference-in-differences framework that explicitly allows for interference through pre-specified exposure mappings on a contiguity graph. The estimates show large and persistent direct gains in covered employment and wage bill in the treated municipality--industry cells over 0--16 quarters. Same-industry neighbors experience sizable short-run gains that reverse over the medium run, while within-municipality cross-industry and neighbor all-industries spillovers are small and imprecisely estimated. Once these spillovers are taken into account and spatially robust inference and sensitivity checks are applied, the net regional 0--16 quarter effect on covered employment is positive but modest in magnitude and estimated with considerable uncertainty. The results imply that first sizable entries generate substantial local gains where they occur, but much smaller and less precisely measured net employment gains for the broader regional economy, highlighting the importance of accounting for spatial spillovers when evaluating place-based policies.