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

Does the Embargo Affect Cuba's GDP?

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.

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