Thursday, July 5, 2012

How Much Does the US Embargo Impact Cuba's Human Development?



It seems reasonable to think that the US trade embargo against Cuba would impact the island's human development. Small countries cannot provide all of their own needs, so they must rely on imports to fill those needs. They must also rely on exports to pay for those imports.

The United Nations compiles data on most countries in their Human Development Index (HDI). The HDI gives a macro level indication of each country's standard of living, or the well being of its people. The index is built from data on economic income, health and education.

By comparing Cuba's HDI to its neighbours and the rest of the world, we can see if it has been lagging, and this can suggest the amount of impact the embargo might have. By comparing the growth rate of Cuba's HDI to its neighbours and the rest of the world, we can see if it is being restrained and perhaps estimate the degree of restraint.

The UN's 2011 HDI report includes the country rankings as well as the growth rates (higher is better in both cases).

Here is the data:


 Cuba's HDI Level vs Dominican Republic

                        Cuba   Dominican Rep.
1985               .665       .549
1990               .677        .577
1995                .646       .608
2000               .681        .640
2005               .725        .658
2010               .773        .686

Sources:
http://hdrstats.undp.org/images/explanations/CUB.pdf
http://hdrstats.undp.org/images/explanations/DOM.pdf


 Cuba started the period with a moderate HDI level of 0.665. Meanwhile, Dominican Republic began somewhat lagging at 0.549 even without being under embargo and operating in a generally improving political climate that included a return to democracy. Furthermore, Cuba has maintained its lead throughout the entire period.



For 2011, Cuba’s HDI of 0.776 lies in the High Human Development category, and ranks 51st in the UN’s world of 187 countries. As an initial comparator, neighbouring Dominican Republic scores 0.689, in the Medium Human Development category, and ranks nearly twice as far down in the world list at 98th. As the following table shows, both have been rising steadily almost as long as the data have been tracked (since 1985 for Cuba; earlier for others). The only exception was a brief decline in 1995 after the Soviet collapse.
 

Average Annual Growth Rate of HDI

                                                  1990-2011    2000-2011
 Cuba                                      0.65%             1.19%
Latin America & Carib        0.76%             0.66%
World                                     0.66%             0.66%
High HDI Group                  0.64%             0.70%

Source: http://hdr.undp.org/en/media/HDR_2011_EN_Table2.pdf


As with economic growth, Human Development growth tends to cluster according to its level. For example, high income economies such as the US and Japan tend to have lower growth rates than low income economies. As an analogy, where there is more room to grow, the growth rate is higher. Likewise, countries with lower levels of Human Development tend to have faster HDI growth. For this reason, comparisons are usually made between countries in the same category. 

So in Cuba’s case, it is compared with countries in the High HDI category. And in this comparison, not only does its HDI growth seem to have gone unimpeded in the last decade, but Cuba’s growth rate is highest in the High Human Development group. Cuba has once again turned out a counter-intuitive result: that the US embargo has not impeded its HDI growth.

Wednesday, June 20, 2012

Papers around the world have reported that ING Bank has agreed to pay a fine of $619 million for illegally conducting transactions on behalf of Cuba. ING was reported to have channeled at least $2 billion through US banks since the 1990s in contravention of the US embargo against Cuba and Iran. Other European and UK banks have been charged and convicted of similar offenses involving Cuba and other countries.

This revelation once again raises the question of just how effective the US embargo is at constraining Cuban economic activity. If $2billion were known to be involved with just one bank, how many more billions went undetected?

Banking developments such as this underscore the difficulty of quantifying economic activity in closed market societies such as Cuba. But this can still be done using indirect indicators.
Cuba Under Embargo is a new book that assesses the macroeconomic impact of the embargo. Find out how it adds up by clicking the link below...

Links:

News Release

US Department of Justice
http://www.justice.gov/
http://www.justice.gov/opa/pr/2012/June/12-crm-742.html

Cuba Under Embargo:
The Macro Impact
available at Amazon
http://www.amazon.com/Cuba Embargo

Wednesday, May 16, 2012

Does the Embargo Affect Cuba's GDP?

It seems reasonable to suspect that the embargo would have a crushing impact on Cuba's economic output, so this effect should show up in a comparison of Cuba with its closest neighbours. Most trade theorists would agree that cutting off the largest and closest trading partner will seriously reduce a small economy's performance (usually indicated by GDP per capita). This does not seem to have happened, because Cuba is right in line with its regional peers, Jamaica and Dominican Republic.

The UN is virtually the only data source on Cuban GDP as the government does not consistently publish this figure. I graphed each country's real per capita output using UN data, and added Puerto Rico even though it is fully integrated with the US economy (not really a trading partner so much as another state).


Cuba - red; Jamaica blue; Dominican - green

 
While Puerto Rico is alone at a much higher level, the other three islands form a tight group. Cuba starts the period (1970 - 2008) midway between Dominican Republic and Jamaica but ends the period ranking first. Dominican Republic grows along with Cuba and only Jamaica fails to progress over the 38 years.


It seems reasonable to expect that Cuba’s worst circumstances for growth would be under the embargo along with no majority trading partner. And yet in the most recent period, with exactly those conditions and a tightened embargo, Cuba has seen its highest growth. 

This argues against the idea of economic harm from restraint of trade. Jamaica is free to trade with everyone in the world, has an English language advantage in US markets and is even a member of the Commonwealth since 1962, and yet has seen a steadily deteriorating growth rate for over half a century. Dominican Republic and Puerto Rico are more typical in that they had fluctuating positive growth over the decades although Puerto Rico clearly has an economic advantage in being fully integrated with the US.
 
The structural shift from agriculture to manufacturing and eventually to services is associated with higher long term GDP growth in countries across the Caribbean and across the globe. In other words, less agriculture is strongly correlated with higher national income. The interesting point about Cuba is that it fits so very neatly into this world-wide economic pattern: modest income and a gradual shift away from agriculture. This means that the idea of unique and significant harm to Cuba from the American embargo is highly implausible. Its economic performance matches so many other American trading partners with a similar industrial structure that the embargo has clearly not singled out Cuba.

So the ultimate question regarding the impact of the embargo is whether Cuba's economy would have soared if it had been allowed to continue selling sugar and cigars to the US for decades. The global experience shows that trade with the US would not suffice. Many other countries do varying amounts of trade with the US, and their economic performance shows absolutely no correlation with trade volume.

Likewise trade in agricultural and manufactured goods with any other country would not suffice. Instead it seems that Cuba could have fared better had it transformed its economy more quickly toward the international export of services. Aside from Caribbean islands with oil related wealth such as Trinidad and Aruba, the best economic performance has occurred in those islands that focused on tourism, finance and insurance services.

Monday, May 14, 2012

Cuba Under Embargo: the Macro Impact

 was published in May 2012.


This is the only book that describes the total macro-economic impact
of the 50 year US embargo.

Available in Paperback, click here www.amazon.com/Cuba Under Embargo Paperback

or on Kindle, click here  www.amazon.com/Cuba Under Embargo Kindle



The Spanish translation is coming soon
at Amazon.com