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  5. Cuba–Foreign Investment, Remittances and History
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Cuba–Foreign Investment, Remittances and History

Paper Session

Friday, Jan. 6, 2023 2:30 PM - 4:30 PM (CST)

New Orleans Marriott, Preservation Hall Studio 1
Hosted By: Association for the Study of the Cuban Economy
  • Chair: John Devereux, CUNY-Queens College

Foreign Investment in Cuba: Risk, Uncertainty and Sanction

Luis R. Luis
,
International Research and Strategy

Abstract

This paper looks at the recent evolution of foreign direct investment in Cuba and five neighboring countries with the aid of OECD and World Bank panel data. FDI disbursements in Cuba in recent years are quite low, well below announced contractual amounts. Regression analysis provides evidence that debt payments arrears, an indicator of country risk, sharply affect FDI. Changes in sanction regimes in 2013-2019 towards Cuba and Nicaragua also impact net FDI, especially the second country. Elevated country risk leads to high variance of discounted cash flows for FDI projects impeding decision-making. The paper discusses ways of mitigating country risk by investors and the recipient country. Many elements of country risk in Cuba are undiversifiable by investors. Recent legal and regulatory changes are a step forward. They are of limited avail without improved creditworthiness and eased economic rigidities and distortions.

Reciprocity and the Long-Run Unraveling of US-Cuban Trade Cooperation

Alan Dye
,
Barnard College and Columbia University

Abstract

Cuba’s specialization in sugar manufacture in the nineteenth century required heavy investment in industry-specific capital. Industry-specific production capacity deepened Cuba’s commitment to the specialization in exports of raw sugar. The international market for Cuban sugar exports became less diversified as European beet-sugar-producing countries closed their markets off to cane-sugar imports. Cuban interest in trade reciprocity with the United States emerged as the United States became the only country able and willing to absorb the volume of sugar that Cuba could produce. Theory shows that a bilateral trade agreement involving industry-specific investment between countries of asymmetric size can leave the smaller country with diminishing bargaining power in the long run, because it is difficult for the smaller country to walk away. This combination of factors offers an explanation for Cuba’s persistence in trade cooperation with the United States despite deteriorating terms of reciprocity in the relationship.

How Distorted Is Cuba’s Economy. Implications for Economic Reform

Ricardo Torres
,
American University

Abstract

After 62 years since the Triumph of the Revolution, Cuba exhibits the second longest period of any country under central planning. This paper produces estimates of the magnitude and composition of economic distortions attributable to the socialist model. In the late eighties, Cuba’s economy was as distorted as some of the poorest Eastern European countries. Since the nineties, the composition of the distortion has tilted towards trade, with the expansion of non-market trade arrangements and overall, extremely low international competitiveness. Any successful reform will have to focus on a reallocation of workers towards personal and business services, light manufacturing and tradables activities. However, the demographic structure emerges as a formidable obstacle.

Discussant(s)
Luis R. Luis
,
International Research and Strategy
Luis Locay
,
University of Miami
John Devereux
,
CUNY-Queens College
JEL Classifications
  • F2 - International Factor Movements and International Business
  • N0 - General