Trade-growth relationship in Cuba: Estimation using the Kalman filter

In this article, time-varying coefficients are used to estimate the balance of payments constrained growth (BPCG) model for Cuba. Exports are considered to have been a decisive factor in Cuba's recovery following the crisis. Also, there was an estimated increase in income elasticity of demand for imports in the early 1990s and between 2003 and 2005, indicating a decrease in import substitution. The conclusion is that, given the rapid rise in the export of services, there are now better growth prospects for the Cuban economy. However, prospects could be better and would benefit a larger share of the economy if import substitution were also made more efficient and other export sectors with a greater multiplier effect were expanded.