The objective of industrial complex analysis is to estimate the cost advantages of various combinations of industrial activities for a region in order to identify its most favorable development projects. this type of analysis has been carried out for Puerto Rico in which petroleum refining, petrochemical, fertilizer and synthetic fiber production are considered.

The method of analysis is an extension of input-output or interindustry analysis called activity analysis. In activity analysis a process may produce more than one output and there may be more than one process that produces a given output. In input-output or interindustry analysis there is a one-to-one correspondence between processes and products. In activity analysis, because there may be more than one technique for producing a good, there can be tradeoffs, such as between labor and capital, in producing a good.

In the industrial complex analysis for Puerto Rico 73 activities or processes involving 37 different inputs or outputs are considered. These include the production of four different synthetic fibers (Dacron, Dynel, Orlon and Nylon) each in three different forms (polymer, staple and filament).

The analysis for Puerto Rico is limited to four regions:

• Venezuela, as source of crude petroleum
• Puerto Rico
• the New York-Philadelphia-Baltimore region, as a market area
• the Gulf Coast region, as a market and competitive production region

The South Atlantic region was left out of the analysis because, due to economies of scale, the shipping rates to the New York-Philadelphia-Baltimore region are cheaper than to the South Atlantic region even though the South Atlantic region is physically closer to Puerto Rico.

The raw material inputs were assumed to be directly proportional to the level of operation of a process. This is dictated by the chemistry of the process. The analysis did considered possible economies of scale in the capital equipment requirements and also the labor input requirements. These inputs were assumed to be of the forms:

C = C₀Q^a
and
L = L₀Q^b
 

where a and b are positive exponents of less than 1.0 in value.

The focus of the analysis is cost comparison, which seems dramatically different from the focus of interindustry analysis on changes in output, but the mathematics is very closely related.

Conclusions of the Analysis:

• Petrochemical production involves significant cost disadvantages for Puerto Rico because of transportation and the need for skilled labor. This also applies to a less degree for refinery applications.
• There are significant cost advantages for Puerto Rico in fertilizer production because of the significant domestic demand for fertilizers
• There are significant cost advantages for Puerto Rico in synthetic fiber production because of the availability of cheap domestic labor for textile operations.
• Staple fiber production involved a greater cost advantage for Puerto Rico than continuous filament fiber because of the higher labor cost for filament production
• The analysis was extended by considering three different levels of scale to see how the relative cost of Puerto Rico activities is affected by economies of scale.

Source: Walter Isard, Euguene W. Schooler and Thomas Vietorisz, Industrial Complex Analysis and Regional Development: A Case Study of Refinery-Petrochemical-Synthetic Fiber Complexes and Puerto Rico Technology Press and John Wiley & Sons, New York, 1959,