ESTIMATION OF THE ECONOMIC IMPACTS OF U.S. – CUBA TRADE ON FLORIDA ECONOMY IN A POST U.S. TRADE EMBARGO ERA Tim Lynch, Ph.D., Director & Necati Aydin,

ESTIMATION OF THE ECONOMIC IMPACTS OF U.S. – CUBA TRADE ON FLORIDA ECONOMY

IN A POST U.S. TRADE EMBARGO ERA

Tim Lynch, Ph.D., Director&

Necati Aydin, Ph.D. Research Associate

Center for Economic Forecasting and Analysis (CEFA)Florida State University

www.cefa.fsu.edu

Presented at The Future of U.S. – Cuba Economic Relations

The Biltmore Hotel, Coral Gables, Florida,June 10, 2004

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 (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.

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 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 Florida economy (assuming these trends return and grow).

Gravity theory suggests that Florida 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.

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)

$1.2 $2.5 $4.6 $5.6 $5.5 $9.5 $3.5 $4.5 $6.9 $7.1

$145.6

$260.8

$0

$50

$100

$150

$200

$250

$300

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

Source: USA Trade Online, U.S. Census Bureau, 2003

Allows for U.S. food and medical exports to Cuba under certain conditions.

In its first two year of implementation, the U.S. exports to Cuba rose by a factor of almost 40.

2003 U.S. EXPORT to Cuba by Category

Source: USA Trade Online, U.S. Census Bureau, 2003

$36.7 $38.3

$51.5

$38.8

$85.1

$7.2$3.3

$0

$10

$20

$30

$40

$50

$60

$70

$80

$90

Wheat Soybeans Oilseeds, Foodoils

Meats, poultry,etc.

OtherAgircultural

Industrial Misc.

Expo

rt

96% of 2003 U.S.exports to Cuba are food related.

Compared to 2002 exports, those of 2003 rose by 79%.

Top Ten Import Products by Cuba

in 2001 Top Ten Import Products by Cuba in 2001

(Million U.S. Dollar)

$663

$333

$139

$119

$99

$72

$68

$63$61 $54

Petroleum oils, not crude

Crude petroleum oils

Wheat and meslin

Rice

Milk and cream, concentratedor sweetened

Meat & edible offal of poultrymeat

Cars (incl. station wagon)

Automatic data processingmachines;optical reader, etc

Dried vegetables, shelled

Wheat or meslin flour

Source: International Trade Center (ITC) Website, www.intracen.org/menus/countries.htm

Top Ten Export Products by Cuba in 2001

Top Ten Export Products by Cuba in 2001 (Million U.S. Dollar)

$543

$462

$241

$77

$50

$25 $22

$34$33 $26

Cane or beet sugar and chemically puresucrose, in solid formNickel matte,nickel oxide sinters

Cigars, cheroots, cigarillos & cigarettes

Crustaceans

Fruit & vegetable juices, unfermented

Cements, portland, aluminous, slag,supersulfateHuman & animal blood; antisera, vaccines,toxins, micro-organism culturesSemi-finished products of iron or nonalloy steel

Petroleum oils, not crude

Tobacco unmanufactured; tobacco refuse

Source: International Trade Center (ITC) Website, www.intracen.org/menus/countries.htm

EXAMPLES OF NEIGHBORING NATIONAL PERCENTAGE OF EXPORT AND IMPORT

TO GDP (2002)

18.3%16.2%

27.2%

15.6%

5.9%

16.6%

10.2%

17.2%

0%

5%

10%

15%

20%

25%

30%

Mexico DominicanRepublic

Costa Rica Cuba

Exports/ GDP

Imports/ GDP

Source: USA CIA, Fact Book, 2003

THE ESTIMATION OF THE IMPACT OF FREE TRADE WITH

CUBA

Goods

ServicesCapital

Productivity

Profits

Low cost productionStrong economy

Entrepreneurs

OLD ECONOMY WITH RESTRICTED TRADE

People

Goods

Services

Capital

Higher productivityHigher wages

Higher quality of life

Higher profits

Entrepreneurs

More resilient economyHigher efficiency

Higher wealth

People

NEW ECONOMY WITH FREE TRADE

FORECASTED POSSIBLE US-CUBA 10 YEAR GROWTH IN TRADE (2003$)

$2.7

$6.0

$3.5

$7.9

$4.2

$9.5

$0.0

$1.6

$3.2

$4.8

$6.4

$8.0

$9.6

$11.2

Imports Exports

Bill

ion

do

llars

7% GDP growth

10% GDP growth

12% GDP growth

FORECASTED POSSIBLE US-CUBA 20 YEAR GROWTH IN TRADE (2003$)

$7.77

$11.80$13.51

$20.52$19.38

$29.42

$0.0

$2.6

$5.2

$7.8

$10.4

$13.0

$15.6

$18.2

$20.8

$23.4

$26.0

$28.6

$31.2

Imports Exports

Billio

n d

olla

rs

7% GDP growth

10% GDP growth

12% GDP growth

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 2024 (20 years) from Shifts of Free Trade with Cuba

(2003$)

$102.1

$176.6

$253.4

$75

$95

$115

$135

$155

$175

$195

$215

$235

$255

$275

7% 10% 12%

Growth Scenarios

Imp

ac

t o

n U

.S. G

DP

($

Billio

n)

Estimate of the Total Job Increase in the U.S. Through 2024 (over 20 years) from

Shifts of Free Trade with Cuba

315,269

575,204

845,621

200,000

300,000

400,000

500,000

600,000

700,000

800,000

900,000

7% 10% 12%

Growth Scenarios

Jo

b C

reati

on

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 (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 Output Impact of 5% Increase in Productivity from Free Trade with Cuba

on Florida Economy over 10 Years

$99,165,812

$23,758,857$63,433,710

$6,358,357

$84,365,872

$499,277,139

$-

$100,000,000

$200,000,000

$300,000,000

$400,000,000

$500,000,000

$600,000,000

WaterborneTransport

Rail Road FreightTraffic

Agriculture Manufacturing IT-Telecom Tourism

The Output Impact of 5% Increase in Productivity from Free Trade with Cuba on the Florida Economy over 20 Years

$229,447,197

$46,067,814

$164,046,985

$11,638,063

$238,079,581

$1,185,177,050

$-

$200,000,000

$400,000,000

$600,000,000

$800,000,000

$1,000,000,000

$1,200,000,000

$1,400,000,000

WaterborneTransport

Rail RoadFreight Traffic

Agriculture Manufacturing IT-Telecom Tourism

The Output Impact of 5% Increase in Productivity from Free Trade with Cuba on the Florida Economy over 35 Years

$490,380,361

$83,098,733

$410,127,818

$29,784,712

$585,348,775

$2,518,158,556

$-

$500,000,000

$1,000,000,000

$1,500,000,000

$2,000,000,000

$2,500,000,000

$3,000,000,000

WaterborneTransport

Rail RoadFreight Traffic

Agriculture Manufacturing IT-Telecom Tourism

The Jobs Impact of 5% Increase in Productivity from Free Trade with Cuba on the Florida Economy over 10 Years

1,284278

1,588

79637

9,671

-

2,000

4,000

6,000

8,000

10,000

12,000

WaterborneTransport

Rail RoadFreight Traffic

Agriculture Manufacturing IT-Telecom Tourism

The Jobs Impact of 5% Increase in Productivity from Free Trade with Cuba on

Florida Economy over 20 Years

2,658468

3,776

1261,467

20,722

-

5,000

10,000

15,000

20,000

25,000

WaterborneTransport

Rail RoadFreight Traffic

Agriculture Manufacturing IT-Telecom Tourism

The Jobs Impact of 5% Increase in Productivity Free Trade with Cuba on

Florida Economy over 35 Years

4,944

698

8,559

2502,920

38,847

-

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

WaterborneTransport

Rail RoadFreight Traffic

Agriculture Manufacturing IT-Telecom Tourism

SUMMARY OF FINDINGS (For The U.S. Economy)

Normalization of trade between Cuba and the US will result in:

$9 to $14 billion imports and exports over 10 years annually; $20 to $49 billion in 20 years.

$5 to $13 billion annual dynamic increase in U.S. GDP over 20 years.

315 thousand to 846 thousand 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:

$1.1 to $2.1 billion growth in Florida GDP over 35 years

14,000 to 27,372 new jobs in Florida over 35 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