Accounting for the Growth of Real GDP in Cuba, 1990-2010

Abstract

This chapter examines the evolution of real Gross Domestic Product (GDP) in Cuba over the past two decades using a neo-classical, supply-side approach. On the basis of a Cobb-Douglas production function, it seeks to account for the contributions of capital and labor to output. It then considers the effects of the terms of trade and of the inefficiencies introduced by price controls. It discusses the difficulty in explaining the depth of the economic contraction experienced in the early 1990s and suggests that two factors played a temporary but important role: the interruption in the supply of equipment and parts from the Soviet Union and the impact of the huge monetary overhang that resulted from the interaction of large-scale monetary financing of fiscal deficits and price controls. The chapter then attempts to adjust for the overstatement by official statistics of real GDP in the first decade of the 21st century by focusing on the public health and social assistance sectors of the economy. The last section examines two sources of overstatement of effective employment in the data and their implications for labor market policy and output growth.