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Growth and Wellbeing in the Long-run: Spain in the Italian Mirror by Leandro Prados de la Escosura (Universidad Carlos III, Madrid) Banca d’Italia, Roma,

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Presentation on theme: "Growth and Wellbeing in the Long-run: Spain in the Italian Mirror by Leandro Prados de la Escosura (Universidad Carlos III, Madrid) Banca d’Italia, Roma,"— Presentation transcript:

1 Growth and Wellbeing in the Long-run: Spain in the Italian Mirror by Leandro Prados de la Escosura (Universidad Carlos III, Madrid) Banca d’Italia, Roma, 9 November 2011

2 Trends in Real Output per Head in Preindustrial Spain (11-year moving averages) (1850/59 = 100) [logs]

3 Growth of Output per Head (%)

4 Spain and Italy: Real Output per Head, 1280-1850 (1850/59 = 100) (11-year moving averages) (logs)

5 Spain’s: Italy’s Mirror Image Italy In phases of demographic stagnation or decline, -> population pressure on resources relaxes => improvement in per capita income Spain under sluggish or negative population growth => falling output per head (and vice versa) => a frontier economy up to the 16th century - 1600 onwards, crops expanded at the expense of pasture

6 Spain and Italy in European Perspective: Per Capita GDP Levels (U.K. 1850 = 100) (1990 G-K $)

7 The Early 19th Century: A Turning Point in Spain Population increase Agricultural productivity growth Urbanization New institutional framework GDP per head growth… despite the loss of empire But … relative decline

8 Real Per Capita GDP, 1850-2007

9 Long-term Growth, 1850-2007: New Evidence Real GDP multiplied by 57 Real GDP per head by 19 Three main phases of growth: 1850-1950 1951-1974 1975-2007 Continuity over 1850-1950 View of 19 th C failure and 20 th C success, rejected

10 Phases of Economic Growth 1850-2007 (%)

11 GDP Growth Decomposition, 1850-2007 (%)

12 Long Swings (1850-2007 ) Long swings differ from trend growth due to economic policy, international integration and technological changes 1850-83 Acceleration: Reconstruction, openness, capital inflows 1883-1920 Deceleration: Stability but isolation 1920-29 Acceleration: Govt intervention and capital inflow 1929-52 Depression, Civil War, Autarchy 1952-58, Growth with hardly any institutional change 1958-74, Accelerated growth and cautious opening up 1974-86, Deceleration: the costs of the transition to democracy 1986-2007, Growth recovered after accession to European Union

13 Spain’s Relative Per Capita GDP (%) (2005 EKS $)

14 Growing up, Falling Behind, Catching Up 1810-1850, economic activity grew faster than population, but slow per capita income (0.4 %) => Retardation 1850s-1914, per capita GDP growth parallel to a widening gap with the Core => Growth and backwardness paradox World Wars sluggish growth and backwardness 1920s dynamism and a mild Great Depression, more than offset by the Civil War Late 20th century: Growth and Catching-up …but not convergence

15 What’s behind GDP per Head? GDP per capita = GDP/hour x Hours/person Long-run labour productivity growth (1920s, 1953-1986) Hours per person: long-term decline From 1975 onwards: * labour quantity and productivity, evolved inversely - 1975-86: employment destruction, more than offset by a productivity surge - 1987-2007: productivity slowdown, offset by the increase in hours worked * opposite trends in GDP per head and per hour worked

16 GDP per Person and per Hour, 1850-2007

17 Per Capita GDP Growth Decomposition (%)


19 Italy : Per Capita GDP Growth Decomposition (%)

20 Labour Productivity and Structural Change (upper bound)

21 Italy : Labour Productivity and Structural Change (upper bound)

22 Main Comparative Results Italy: BGZ (2011) Modest growth prior to WWII … but spurts in 1880-1913 and 1938-51 Golden Age acceleration: productivity growth across the board & structural change Productivity slowdown since 1993: the role of services Spain Mild pre-1950 productivity growth & structural change(except 1920s) Acceleration 1953-86: the Golden Age and ‘Transition’ Dramatic slowdown since 1986 (EU accession)

23 Hours Worked per Occupied-Year, 1850-2007

24 Italy: Hours worked per occupied-year, 1861-2011

25 Determinants of Labour Productivity Physical capital per occupied (hour) Human capital per occupied (hour) Efficiency gains (PTF)

26 Capital Input: Growth Rate (%)

27 Composition of Capital Stock in Spain (%) (1995 Pesetas)

28 Italy: Composition of Capital Stock (%)

29 Labour Quantity (hours worked): Growth Rate (%)

30 Capital Deepening: Growth Rate (%)

31 Human Capital: Alternative Measures Education based (Mincer) Educational levels (years of schooling) weighted by education returns It does not consider other forms of human capital Income based (Jorgerson) Skill levels of workforce weighted by relative wages Data demanding … assumption of perfect competition in relative remunerations

32 Labour Quality Measures: Income and Education

33 Labour Quality Growth: Income and Education Approaches(%)

34 Sources of Labour Productivity Growth (%)

35 Sources of Labour Productivity Growth Variable Factor Shares (Income)

36 Sources of Labour Productivity Growth Variable Factor Shares (Education)

37 Italy : Sources of Labour Productivity Growth (% )

38 The Sources of Labour Productivity Growth TFP accounts for half the labour productivity increase 1850-2000 Factor accumulation ruled prior to 1950 and since 1987 TFP, hegemonic in the 1920s and 1953-1986 Labour productivity and TFP growth, closely associated 1920s, 1951-74, labour productivity acceleration mostly due to TFP Broad capital accumulation and efficiency gains, complementary for labour productivity growth TFP and capital main spurts coincide with: -the impact of the railways (1850s-80), -the electrification (the 1920s and 1950s) -adoption of new vintage technology in the Golden Age

39 Why the recent Labour Productivity Slowdown? Have Italy & Spain exhausted their catching-up potential? TFP gains from structural change, exhausted Spain, industry, efficient and small (17.5% GDP in 2007), tiny agriculture (2.9% GDP in 2007), but large service s Challenges - low productivity in construction and services (IT) - more education does not imply more human capital

40 Income Distribution and Poverty How has per capita GDP been distributed over time? Did growth reach the bottom of the distribution? Was there a growth-inequality trade-off? Did growth and inequality changes have an impact on absolute poverty?

41 How to measure inequality? Gini = ∑ G i p i π i + ∑ ((y p – y l )/ y l ) π l p p + L [A] [B] [L] ∑ Gi pi π i ( Gini A ), weighted sum of within-group inequality ∑ ((y p – y l )/ yl) π l p p ( Gini B ), between-group inequality ( L ) is the overlapping component (residual)

42 Gini and its Components, 1850-2000

43 Inequality Trends Wide inverted W, peaks in 1918 and 1953 Between-group inequality ruled the pre-1960 era Within-group inequality ruled the post-1960 era => social concern for different kinds of inequality before and after 1960 When inequality plotted against real per capita income, a single Kuznets curve

44 The Kuznets Curve in Spain (Kernel Fit Epanechnikov, h=0.4042)

45 Inequality before and after Franco Why Inequality fell in the globalization backlash? Forces pushing for re-distribution - unions ’ increasing bargaining power - labour unrest - menace to property rights => the drop in capital and land returns relative to labour more than offset the rise in wage dispersion Interwar inequality decline, at odds with a war of attrition on income (wealth) distribution Early Francoism: rising inequality inequality fell within labour and capital but polarization increased Late Francoism Redistribution => inequality reduction

46 Comparative Findings Political factors conditioned income inequality trends WWs increased inequality with no permanent effects No impact of progressive taxation until the 1980s The inequality rise in early Francoism, not explained by property income concentration, but by its share in GDP => divisive effects of Civil War Spain converged to OECD, except for the Autarchy Spain and Latin America: divergence since the 1950s

47 Gini in Spain and OECD Countries, 1870-2000

48 Italy: Income Inequality, 1861-2011

49 Gini in Spain and Latin America, 1870-2000

50 Was There Economic Polarization? Polarization: An increase in between-group inequality (a growing gap between proprietors and workers) parallels a decline in within-group inequality A measure of polarization: Ratio of ‘between-group’ inequality to ‘within-group’ inequality (Zhang & Kanbur 2001)

51 Economic Polarization (Gini)

52 Did growth and income distribution changes have an impact on absolute poverty? Poverty reduction depends on the Growth of average incomes Changes in income distribution How sensitive poverty is to growth and inequality But also on the initial inequality level level of development poverty line

53 Poverty Headcount (%) (Poverty Line 1985 Geary-Khamis $ 2 a day per person)

54 Poverty Trends A long run decline in absolute poverty, with reversals in the early 20th Century and during Autarchy Poverty reduction at a different speed: - slower before World War I => the impact of growth on poverty weakened with rising inequality & low initial development - faster, and accelerating, in the 20th Century once the initial income constraint was released => by the end of Francoism, absolute poverty < 2% Growth plus inequality fall (Interwar; since 1950s) => reduction in absolute poverty

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