Final answer:
Puerto Rico has a mixed economic system with a strong industrial sector and a significant tourism industry. Its economy is closely linked to the United States through trade and federal aid, despite the high poverty rate. U.S. firms have invested heavily in the island, stimulated by tax incentives and duty-free access.
Step-by-step explanation:
The economic system of Puerto Rico is a mixed one, combining elements of both a free market and government regulation. As a territory of the United States, Puerto Rico benefits from a close economic relationship with the mainland, including duty-free access to the US market and federal financial aid. Despite this, around 60 percent of Puerto Ricans live below the poverty line. The island has a diverse industrial sector that has overtaken agriculture as the primary focus of economic activity. Major industries include pharmaceuticals, electronics, petrochemicals, and finance. Since the 1950s, U.S. firms have made significant investments in Puerto Rico, stimulated by various tax incentives.
Tourism is another critical pillar of the Puerto Rican economy, with the island attracting over five million visitors annually. San Juan, the capital, is a leading Caribbean destination for cruise ships, supporting various service-related jobs and industries. However, the island's heavy reliance on the United States poses economic challenges, including a vulnerability to policy changes and economic fluctuations within the US.
Agriculture plays a smaller role in the economy, with sugar production giving way to dairy and livestock. Historically, the Spanish Caribbean, including Puerto Rico, had a strictly controlled economic system focused on resource extraction, such as the Quinto rule for mined precious metals. Yet, today's economic landscape in Puerto Rico is vastly different, characterized by modern industries and services, though it still grapples with the legacy and constraints of its colonial past and its current status as a US commonwealth.