Download Reinterpreting Spain`s Economic Past

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
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35
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05
90
75
60
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30
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85
70
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40
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10
95
80
65
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20
05
90
75
60
45
30
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00
85
70
55
40
25
10
95
80
Trends in Real Output per Head in Preindustrial Spain
(11-year moving averages) (1850/59 = 100) [logs]
4.7
4.6
4.5
4.4
4.3
4.2
4.1
Growth of Output per Head (%)
1280/9-1340/9
0.12
1340/9-1370/9
1370/9-1590/9
-0.69
1590/9-1670/9
-0.18
1670/9-1810/9
0.11
1810/9-1850/9
0.44
1280/9-1850/9
0.04
0.15
Spain
Italy
1850
1835
1820
1805
1790
1775
1760
1745
1730
1715
1700
1685
1670
1655
1640
1625
1610
1595
1580
1565
1550
1535
1520
1505
1490
1475
1460
1445
1430
1415
1400
1385
1370
1355
1340
1325
1310
1295
1280
Spain and Italy: Real Output per Head, 1280-1850
(1850/59 = 100) (11-year moving averages) (logs)
5
4.9
4.8
4.7
4.6
4.5
4.4
4.3
4.2
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
Spain and Italy in European Perspective:
Per Capita GDP Levels (U.K. 1850 = 100) (1990 G-K $)
110
100
90
80
70
60
50
40
30
20
1300
1348
UK
1400
Netherlands
1500
1570
Belgium
1600
Germany
1650
France
1700
Italy
1750
Spain
1800
Sweden
1850
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
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20
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05
00
95
90
85
80
75
70
65
60
55
50
45
40
35
30
25
20
15
10
05
00
95
90
85
80
75
70
65
60
55
50
Real Per Capita GDP, 1850-2007
10000
1000
100
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 19th C failure and 20th C success, rejected
Phases of Economic Growth 1850-2007 (%)
GDP
GDP per Head
Population
1850-2007
2.6
1.9
0.7
1850-1950
1951-1974
1975-2007
1.4
6.5
3.2
0.8
5.5
2.5
0.6
1.0
0.7
1850-1883
1884-1920
1921-1929
1930-1952
1953-1958
1959-1974
1975-1986
1987-2007
1.8
1.3
3.8
0.8
4.7
6.9
2.5
3.6
1.4
0.7
2.8
0.0
3.9
5.8
1.8
2.9
0.4
0.6
1.0
0.9
0.8
1.1
0.7
0.7
GDP Growth Decomposition, 1850-2007 (%)
7.0
6.0
5.0
4.0
3.0
2.0
1.0
0.0
1850-1883
1884-1920
1921-1929
1930-1952
Per Capita GDP
1953-1958
Population
1959-1974
1975-1986
1987-2007
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
% UK
% France
% Germany
% Italy
% USA
2002
1998
1994
1990
1986
1982
1978
1974
1970
1966
1962
1958
1954
1950
1946
1942
1938
1934
1930
1926
1922
1918
1914
1910
1906
1902
1898
1894
1890
1886
1882
1878
1874
1870
1866
1862
1858
1854
1850
Spain’s Relative Per Capita GDP (%) (2005 EKS $)
1.40
1.20
1.00
0.80
0.60
0.40
0.20
0.00
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
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
PIB per capita
PIB/hora
20
20
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
18
18
18
18
18
18
18
18
18
18
05
00
95
90
85
80
75
70
65
60
55
50
45
40
35
30
25
20
15
10
05
00
95
90
85
80
75
70
65
60
55
50
GDP per Person and per Hour, 1850-2007
10000
1000
100
Per Capita GDP Growth Decomposition (%)
Per Capita
GDP
GDP per Hours worked
hour worked
per person
1850-2007
1.9
2.0
-0.2
Panel A.
1850-1950
1951-1974
1975-2007
0.8
5.5
2.5
0.9
5.5
2.9
-0.1
0.0
-0.5
Panel B.
1850-1883
1884-1920
1921-1929
1930-1952
1953-1958
1959-1974
1975-1986
1987-2007
1.4
0.7
2.8
0.0
3.9
5.8
1.8
2.9
1.2
1.0
2.0
0.0
4.3
6.3
6.1
1.1
0.2
-0.3
0.8
0.0
-0.5
-0.5
-4.4
1.7
Per Capita GDP Growth Decomposition (%)
7.0
5.0
3.0
1.0
1850-1883
1884-1920
1921-1929
1930-1952
1953-1958
1959-1974
-1.0
-3.0
-5.0
GDP per hour worked
Hours worked per person
1975-1986
1987-2007
Italy: Per Capita GDP Growth Decomposition (%)
Labour Productivity and Structural Change (upper bound)
6.00
5.00
4.00
3.00
2.00
1.00
0.00
1850-1883
1883-1920
1920-1929
1929-1952
1952-1958
-1.00
Internal Productivity
Structural Change
1958-1974
1974-1986
1986-2000
Italy: Labour Productivity and Structural Change (upper bound)
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)
Horas/año por ocupado
2006
2002
1998
1994
1990
1986
1982
1978
1974
1970
1966
1962
1958
1954
1950
1946
1942
1938
1934
1930
1926
1922
1918
1914
1910
1906
1902
1898
1894
1890
1886
1882
1878
1874
1870
1866
1862
1858
1854
1850
Hours Worked per Occupied-Year, 1850-2007
2900
2700
2500
2300
2100
1900
1700
Italy: Hours worked per occupied-year, 1861-2011
Determinants of Labour Productivity
• Physical capital per occupied (hour)
• Human capital per occupied (hour)
• Efficiency gains (PTF)
Capital Input: Growth Rate (%)
Composition of Capital Stock in Spain (%) (1995 Pesetas)
0.70
0.60
0.50
0.40
0.30
0.20
0.10
Dwellings
Other Constructions
Transportation Equipment
Machinery and Equipment
2000
1995
1990
1985
1980
1975
1970
1965
1960
1955
1950
1945
1940
1935
1930
1925
1920
1915
1910
1905
1900
1895
1890
1885
1880
1875
1870
1865
1860
1855
1850
0.00
Italy: Composition of Capital Stock (%)
Labour Quantity (hours worked): Growth Rate (%)
Capital Deepening: Growth Rate (%)
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
Jorgenson
RR 7%
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18
18
18
18
18
18
18
98
94
90
86
82
78
74
70
66
62
58
54
50
46
42
38
34
30
26
22
18
14
10
06
02
98
94
90
86
82
78
74
70
66
62
58
54
50
Labour Quality Measures: Income and Education
190
180
170
160
150
140
130
120
110
100
90
Labour Quality Growth:
Income and Education Approaches(%)
1.4
1.2
1.0
0.8
0.6
0.4
0.2
0.0
1850-1883
1884-1920
1921-1929
1930-1952
Jorgenson
1953-1958
Education
1959-1974
1975-1986
1987-2000
Sources of Labour Productivity Growth (%)
1850-2000
Panel A.
1850-1950
1951-1974
1975-2000
Panel B.
1850-1883
1884-1920
1921-1929
1930-1952
1953-1958
1959-1974
1975-1986
1987-2000
(I)
(II)
(III)
(IV)
(V)
Income-based Approach
Labor
TFP
Quality
0.2
1.1
(VI)
(VII)
Education-based Approach
Labor
TFP
Quality
0.3
1.0
GDP per
hour worked
2.1
Land
0.0
Capital
Input
0.8
0.9
5.5
3.4
0.0
0.0
0.0
0.5
1.2
1.4
0.1
0.6
0.4
0.3
3.7
1.7
0.1
0.4
0.7
0.3
3.9
1.3
1.2
1.0
2.0
0.0
4.3
6.3
6.1
1.1
-0.1
0.1
-0.1
0.0
-0.2
0.0
0.0
0.0
0.6
0.6
0.6
0.2
1.3
1.2
1.9
0.8
0.0
0.1
0.5
0.0
0.8
0.9
0.9
0.1
0.6
0.2
1.1
-0.1
2.4
4.2
3.4
0.2
0.1
0.1
0.1
0.3
0.4
0.5
0.8
0.6
0.5
0.3
1.4
-0.5
2.9
4.6
3.4
-0.3
Sources of Labour Productivity Growth
Variable Factor Shares (Income)
7.0
6.0
5.0
4.0
3.0
2.0
1.0
0.0
1850-1883
1884-1920
1921-1929
1930-1952
1953-1958
1959-1974
-1.0
Land
Capital
Labor Quality
TFP
1975-1986
1987-2000
Sources of Labour Productivity Growth
Variable Factor Shares (Education)
7.0
6.0
5.0
4.0
3.0
2.0
1.0
0.0
1850-1883
1884-1920
1921-1929
1930-1952
1953-1958
1959-1974
-1.0
Land
Capital
Labor Quality
TFP
1975-1986
1987-2000
Italy: Sources of Labour Productivity Growth (%)
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
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 services
• Challenges
- low productivity in construction and services (IT)
- more education does not imply more human capital
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?
How to measure inequality?
Gini = ∑ Gi pi πi + ∑ ((yp – yl)/ yl) πl pp+ L
[A]
[B]
[L]
• ∑ Gi pi π i (Gini A),
weighted sum of within-group inequality
• ∑ ((yp – yl)/ yl) πl pp (Gini B),
between-group inequality
• (L) is the overlapping component (residual)
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18
54
18
58
18
62
18
66
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70
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82
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86
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90
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82
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86
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90
19
94
19
98
Gini and its Components, 1850-2000
0.60
0.50
0.40
0.30
0.20
0.10
0.00
Gini A
Gini B
Gini
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
The Kuznets Curve in Spain (Kernel Fit Epanechnikov, h=0.4042)
.52
Gini (Hodrick-Prescott)
.48
.44
.40
.36
.32
.28
6.5
7.0
7.5
8.0
8.5
9.0
Per Capita GDP (log)
9.5
10.0
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
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
Gini in Spain and OECD Countries, 1870-2000
55.0
50.0
45.0
40.0
35.0
30.0
25.0
20.0
1870
1880
1890
1900
Spain
1913
UK
1929
Italy
Norway
1938
1950
Denmark
1960
USA
1970
Japan
1980
1990
Italy: Income Inequality, 1861-2011
Gini in Spain and Latin America, 1870-2000
60.0
55.0
50.0
45.0
40.0
35.0
30.0
25.0
1870
1880
1890
1900
Spain
1913
LatAm4
1929
1938
LatAm6
1950
LatAm15
1960
LatAm16
1970
1980
1990
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)
Polarization Gini
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19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
18
18
18
18
18
18
18
18
18
18
18
18
18
98
94
90
86
82
78
74
70
66
62
58
54
50
46
42
38
34
30
26
22
18
14
10
06
02
98
94
90
86
82
78
74
70
66
62
58
54
50
Economic Polarization (Gini)
3.50
3.00
2.50
2.00
1.50
1.00
0.50
0.00
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
Poverty Headcount (%)
(Poverty Line 1985 Geary-Khamis $ 2 a day per person)
0.500
0.450
0.400
0.350
0.300
0.250
0.200
0.150
0.100
0.050
0.000
1850
1860
1870
1880
1890
1900
1913
1920
1925
1929
$2 Poverty Headcount
1935
1950
1955
1960
1965
1970
1975
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