Wednesday, May 20, 2015

Cuba Uprising

Before this spring, Cuba was the classic example of a closed economy.  Goods and services were not allowed to enter or leave the country, there was practically no foreign capital investment and workers were not allowed to leave the country illegally, nor were many people allowed to enter the country.  As Chapter 7 discusses, none of the components of an open economy existed (labor, capital and goods/services mobility).  Occasionally, there have been massive outflows of Cuba to the United States (Chapter 8 discusses the Mariel Boat Lift in 1980).  Known for its famous cigars, Cuban cigars became a rare commodity in the U.S. due to the trade embargo that has existed since 1960. Visitors to Cuba could not use credit cards or ATMs since U.S. banks were not allowed to operate there. Overall, the country was stuck in the 1950s - in fact, old 1950s and 1960s U.S. cars are commonly seen in the streets of Havana.

In the spring of 2015, the United States and Cuba began diplomatic conversations that could lead to a better economic relationship.  These conversations are the first step in opening up the Cuban economy.  Capital restrictions are gradually being relaxed.  More visitors are being allowed to enter. There are discussions that Cuban foreign goods and services will be sold abroad.  All of these factors should increase raise per capita GDP over the long term (per capita GDP in Cuba is approximately $6,000 in 2011, according to the World Bank’s World Development Indicators.  However, the future is unknown: the economic and political situation is changing there on a daily basis, which will have effects on the inflow and outflow of workers in Cuba. In fact, as the Economist reports in May 2015, more Cubans are fleeing to the United States as Cubans think that the U.S. will tighten its policy towards Cuban immigrants. The Brookings Insitution has a nice discussion of changing U.S.-Cuba immigration policy. 

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