Global Economic Environment: Cuba

Global Economic Environment: Cuba

1. On the Cuban embargo:
1.1.Think about the embargo and its impact on GDP. Embargo is a restriction imposed by another country on goods and services imports as well as capital inflows. What elements of Cuban GDP are affected by it?

GDP is: GDP=C+I+G+XN, where C is consumption, I is investment, G is public expenditures and XN is net exports (exports –imports). The embargo directly affects on the exports, the country is going to suffer a decrease on these, so XN drops, same thing happens with investment so the interest rate goes up due to the restriction of capital inflow. This is going to lead to a decrease on consumption since due to the higher interest rates families are not able to buy as much. Lastly, public expenditure increases, since companies are not able to import, the products need to be made inside the country, so the government helps them.

1.2.What are the pros and cons for the US? From an economic and political standpoint.

There are not many advantages for the US in this embargo, but one of them is that for example the restriction of imports helps American companies that for example sell cigars (one of Cuba´s biggest industries and one of the most exported product), incentives US cigar companies since US citizens will buy more of their cigars. Another advantage, now from a social point of view, is that this embargo, makes the US have a certain control over Cuba, since US could be probably the biggest importer of Cuban products; basically the embargo has a greater impact on Cuban economy than on the American one.

On the other side, the US will lose Cuba as a country that could import goods from them, but since Cuba is a small country, this measure does not affect the US as much it affects Cuba. On the political standpoint, the relation with Cuba disturbs the relation of the US with Cuban allies such as Venezuela.

1.3. What are the pros and cons for Cuba as a country? And for the Cuban government? Also from an economic and political standpoint.

From an economic perspective there are no advantages for Cuba, since Cuba would make a lot of money exporting products to the US, and imports from the US would benefit them a lot, for example they could import petrol, which would be cheaper than import it from countries like Venezuela, which is what they do now. Politically, there are no advantages either, since a good relation with the US, would open Cuba doors for their relations with many other countries.

As I said before, there are basically no advantages for Cuba, which means that there are many disadvantages. Economically, Cuba is losing the country which they would most commerce with, since it is close and is also one of the biggest of the world, Cuba would make a lot of money by exporting goods to the US, and would also benefit from importing from them. Politically, there are many US allies that do not want to deal with Cuba, the US, one of the most powerful countries in the world makes Cuba not give a good image for the rest of the world, which makes Cuba have a bad image al over the world.