ESTIMATION OF THE ECONOMIC IMPACTS U.S. – CUBA TRADE ON FLORIDA ECONOMY IN A POST U.S. TRADE EMBARGO ERA Tim Lynch, Ph.D. Professor Emeritus & Former Director Center for Economic Forecasting and Analysis (CEFA) Florida State University www.cefa.fsu.edu Presented at Doing Business in Cuba Conference: Sponsored by US-Cuba Trade Association Citrus Club Orlando Florida April 13, 2006
CUBAN ECONOMIC HISTORY: BEFORE THE SOCIALIST REGIME • Before 1959 the U.S. was Cuba’s main trading partner. Florida was Cuba’s largest U.S. state trade partner. • 40 percent of all cargo being routed through Miami’s customs district was transported to Cuba. • 85 percent of Cuba’s exports were transported to the United States.
SUMMARY OF ECONOMIC MESSAGE: • GNP = Consumption + Investment + Gov + Exports\Imports (Each works with/on the other) • 1 + 1 MUCHO MAS QUE > DOS • CUBA IS THE “SPRING LOADED” NATION OF THE CARIBBEAN THAT HAS THE LARGEST MOST EDUCATED POPULATION OF THE REGION AND ONLY NEEDS THE OPORTUNITY TO “LAUNCH” INTO THE 21ST GLOBAL ECONOMY. WHO PROVIDES THAT “LAUNCH” THE US OR CHINA AND OTHERS? • THIS LAUNCH CAN BENEFIT CUBA, THE US AND THE CARRIBIAN REGION!
IMPACT OF FREE TRADE WITH CUBA IN THE U.S. ECONOMY • Cuba is the largest and most economically viable of the Caribbean nations. • Its wealth of underutilized natural and human resources and proximity makes it an ideal economic trading partner for the U.S. • For example the U.S.-Cuba Business Council estimated initial Cuban infrastructure needs of: • $500 million investment in telecommunications. • $500 million in mass transit. • $575 million in airports. • $540 million in railroads.
IMPACT OF FREE TRADE WITH CUBA IN THE FLORIDA ECONOMY • Economic reforms in Cuba since the 1990’s towards a more open market system will generate considerable business opportunities for the US and Florida economy (assuming these trends return and grow). • Gravity theory suggests that Florida – the US land bridge closest to Cuba- has more advantages than any other state to benefit from trade liberalization with Cuba. • Lifting sanctions would result in Florida (and the U.S.) adding approximately 11 million additional customers just 90 miles from Florida’s shores. A population equal to that of Georgia and Alabama.
RECENT ECONOMIC IMPACT STUDIES • Embargo costs the U.S. between $3 and $4 billion in lost exports per year. (Preeg, Center for Strategic and International Studies, 1998.) • Lifting sanctions on agricultural exports to Cuba for the 50 states and 22 commodity sectors, will result in increases in exports of $1.2 billion per year. (Rosson and Adcock, Texas A&M University, 2001) • Such increase in exports would stimulate an additional $3.6 billion in total economic output and 31,262 new jobs in the U.S. labor market. (Ibid,Rosson, 2001)
Historic Changes of U.S. Export to Cuba(Millions Dollars) • Allows for U.S. food and medical exports to Cuba under certain conditions. • In its first three year of implementation, the U.S. exports to Cuba rose by almost 300%. Source: USA Trade Online, U.S. Census Bureau, 2004
2004 U.S. Exports to Cuba by Category • 96% of 2004 U.S.exports to Cuba are food related. • Compared to 2002 exports, those exports rose by 79%. Source: USA Trade Online, U.S. Census Bureau, 2003
People Capital Entrepreneurs OLD ECONOMY WITH RESTRICTED TRADE Goods Services Productivity Low cost production Strong economy Profits
People Capital Entrepreneurs NEW ECONOMY WITH FREE TRADE Goods Services Higher productivity Higher wages Higher quality of life More resilient economy Higher efficiency Higher wealth Higher profits
EXAMPLES OF NEIGHBORING NATIONAL PERCENTAGE OF EXPORT AND IMPORT TO GDP (2004) Source: USA CIA, Fact Book, 2004
DESCRIPTION OF FSU CUBA RESEARCH USING THE REMI MODEL • REMI, 2000 (REMI, 2000) is a widely accepted and used dynamic integrated input-output and econometric model. • REMI is the most sophisticated and widely used economic impact assessment tool currently available in the US. REMI is extensively used by US public and private agencies, business and Universities to evaluate the economic impact of pending complex federal, state and local policy actions.
Estimate of the Total Dynamic Increase in U.S. GDP Through 2025 (20 years) from Shifts of Free Trade with Cuba (2004$)
Estimate of the Total Job Increase in the U.S. Through 2025 (over 20 years) from Shifts of Free Trade with Cuba
THE 35 YEAR DYNAMIC ECONOMIC BENEFITS TO FLORIDA ECONOMY FROM LIFTING THE BAN OF TRAVEL TO CUBA (2003$) Source:The Impact on the U.S. Economy of Lifting Restrictions on Travel to Cuba, Center for International Policy Study, July 15, 2002.
THE 35 YEAR JOB IMPACT OF LIFTING TOURIST TRAVEL BAN TO CUBA ON FLORIDA EMPLOYMENT (2004$) Source:The Impact on the U.S. Economy of Lifting Restrictions on Travel to Cuba, Center for International Policy Study, July 15, 2002.
SUMMARY OF FINDINGS (For The U.S. Economy) Normalization of trade between Cuba and the US will result in: • $101 to $253 billion GDP increase over 20 years. • $5 to $13 billion annual dynamic increase in U.S. GDP over 20 years. • 315,000 to 846,000 new jobs in the U.S. economy over 20 years.
SUMMARY OF FINDINGS (For The Florida Economy) The lifting restrictions on travel to Cuba will result in potential tourism dynamic increases alone of: • $1.3 to $2.5 billion growth in Florida GDP over 30 years • 14,000 to 27,500 new jobs in Florida over 30 years • Other Florida industries will increase relative to export demands.
Tim Lynch, Ph.D., Director • Center for Economic Forecasting and Analysis (CEFA) • Florida State University • www.cefa.fsu.edu