Cuba’s Institutional Environment for the Private Sector

Cuba’s rapid expansion of private entrepreneurship since 2021 has become central to employment, the retail supply of consumer goods, and fiscal revenues under a deep macroeconomic crisis, yet persistent regulatory uncertainty raises doubts about whether this dynamism can translate into sustained productive upgrading. My article asks whether Cuba’s institutional environment allows the new private business sector to move beyond an escape valve role and operate as a legitimate engine of structural transformation. My article contributes to our understanding of private-sector development under high state centralisation by showing how selective liberalisation, discretionary governance, and systematic asymmetries across ownership forms can simultaneously enable private activity and lock it into a constrained, second-tier status. I combine a New Institutional Economics framework with a historical-institutional account (1959–2025) and a hypothesis-driven empirical strategy that merges ONEI’s DUINE micro-registry with CNAE codes and OECD technological-intensity mappings, and I use descriptive indicators plus province-level tests (chi-square and difference-in-proportions) to identify spatial and technological gradients. I find that (i) crises trigger openings that authorities later reverse as private actors gain visibility, (ii) the state embeds persistent regulatory and tax asymmetries that disadvantage domestic private capital relative to foreign and state capital, and (iii) missing FX/finance institutions and policy uncertainty bias firms toward short-horizon, import-intensive models, even as the sector’s footprint grows (over 1.6 million non-state workers; private activity at about 23% of tax revenues; HIGH/medium-high tech MSMEs at 4.7% nationally, with Havana at 5.7% versus 3.9% elsewhere and statistically significant differences).