Policies for Economic Growth - Cuba's New Era

Policies for Economic Growth: Cuba's New Era
By: Juan Triana Cordoví and Ricardo Torres Pérez

Editor's note: This paper is currently only available in Spanish. The
English translation is forthcoming.

Cuba exhibits profound paradoxes with regards to development. It has
some resources, but lacks a macroeconomic or institutional framework to
effectively leverage them. Similarly, it boasts a wealth of
highly-educated and qualified workers, yet its economic model does not
generate sufficient employment — either in quantity or quality — or
adequate wages. This economic model likewise has not exhibited the
flexibility to accommodate the changing external environment.

These paradoxes are further exacerbated by external and internal
factors. Externally, the U.S. embargo limits Cuba's access to the large
and nearby U.S. market and precludes Cuba's participation in
international financial institutions. Internally, Cuba faces a complex
interplay between the supply of labor and demand for goods and services,
especially within the context of international markets. Over the next 15
years, Cuba anticipates an aging population and rising dependency ratio
— from 54.7 today to 67.7 in 2025 — resulting in increased pressure on
public finances. Most growth in developing countries in the last 50
years has been the exact opposite, spurred by a growing youth population
and workforce. Together, these elements coupled with the current
economic model make setting Cuba on a sustainable long-term growth path
an immense challenge.

In 2011, the Cuban government, under President Raúl Castro, released new
economic guidelines to "modernize Cuban socialism." In practice, it
permitted some previously restricted economic activities, such as the
purchase and sale of homes and automobiles and creation of
non-agricultural co-ops. Beyond these limited specifics, however, the
implementation of the changes to Cuba's economic model in a way that
cultivates and integrates growth and development is unclear. As a
result, attention has turned to the need for a more modern
infrastructure (especially telecommunications), the necessity of foreign
direct investment and gross fixed capital formation, as well as
production policies that complement the new economic guidelines and
support the high levels of growth and development Cuba needs.

This paper analyses the structural factors that impact economic growth,
including workforce dynamics and quality, physical capital accumulation,
accumulation and structure of factors of production, access to
international markets and the domestic market. It then advances policy
options aimed at addressing the imbalances accumulated over time in
order to set Cuba on a path towards sustainable high-growth.

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Policies for Economic Growth: Cuba's New Era (Spanish)
30 pages, 2.8 MB
http://www.brookings.edu/~/media/research/files/papers/2013/10/politicas-crecimiento-economico-cuba-cordovi-perez/politicas-crecimiento-economico-cordovi-perez.pdf

Source: "Policies for Economic Growth: Cuba's New Era | Brookings
Institution" -
http://www.brookings.edu/research/papers/2013/10/politicas-crecimiento-economico-cuba-cordovi-perez?rssid=social+policy