Margins without Scale: How Productive Segmentation Limits the Expansion of the Private Sector in Cuba

This article examines productive segmentation in Cuba and its effects on private-sector expansion. While existing research has largely emphasised the distortions that segmentation generates within the state sector – such as shortages, low productivity, and fiscal dependence – this article argues that its consequences extend decisively to the private sector. The coexistence of differentiated price vectors and institutional rules has produced a fragmented productive system that reduces the effective volume of business available to private firms. As a result, the private sector operates in an environment characterised by potentially high margins but limited opportunities to scale investment, production, and productive linkages. The article identifies the main channels through which segmentation constrains private-sector growth – including a contraction in effective market size, weak intermediate demand, incomplete factor markets, and macroeconomic instability – and discusses policy options aimed at integrating the productive system through the gradual convergence of prices and rules. It argues that overcoming segmentation is a necessary condition for expanding the market, strengthening productive linkages, and sustaining aggregate growth.