Spanish Economic Growth vs. EU: 1960-Present
Spanish Economic Growth Compared to the EU
Main Characteristics of Spanish Economic Growth vs. EU Growth
Spain has demonstrated a higher economic growth rate than other European countries, averaging 3.1% annually compared to 2.4% in Europe. This highlights a greater capacity for economic growth in nations with a higher delay in economic development.
Economic growth in Spain has largely followed the same trajectory as Europe, even prior to its entry into the European Community in 1986. However, five distinct stages can be identified:
- 1960 to mid-1970s: Rapid economic growth driven by structural changes in industry, agriculture, and foreign investments following the 1950s.
- Mid-1970s to 1984: Economic crisis and divergence from Europe due to changes in Spain’s social and institutional landscape.
- 1985 to mid-1990s: A ten-year period encompassing a complete economic or business cycle following Spain’s accession to the European Union.
- Mid-1990s to 2007: A period of macroeconomic stability.
- 2008 onwards: (Further details needed to complete this stage)
Key Features of Spanish Economic Growth
Changes in Spain’s economy have been more profound than in other European countries. Additionally, variability within different stages has also been greater in Spain.
Long-Term Determinants of Economic Growth
Labor Productivity
The rigidity of product and input markets plays a crucial role. When labor productivity increases more than GDP per capita (employment rate decreases), it typically indicates a recession, and vice versa. Since 1986, economic growth in Spain and Europe has relied more on job creation than on productivity compared to previous periods. Unfortunately, this is particularly significant in Spain, where economic growth is almost exclusively explained by the employment ratio.
Productivity, Capital, and Technological Progress
Economic growth theory explains the increase in labor productivity through a production function with two inputs, capital and labor, and technological progress (t). This can be represented as: Yt/Pt = Yt/Lt * Lt/At * At/Pt, where Productivity = GDP/Population = GDP/Employment.
Factors influencing these elements include:
- Flexibility or rigidity in input and product markets.
- Evolution of productivity and labor (hiring or firing trends).
- The rate of growth in productivity slowed in the 1970s due to changes in the capital-per-worker ratio. This ratio has become slower in the modern economy and is dependent on technological progress.
- Since the 1970s, technological progress in Spain has also decelerated.
- Main causes of the capitalization process:
- The need to incorporate technological progress into new capital goods.
- An increase in the price of labor relative to capital.
- A rise in the relative weight of capital-intensive industries and services in the GDP.
Determinants of Technological Progress
- Increase in the capital-per-worker ratio: Higher efficiency and quality of machinery create positive externalities.
- Improvement in labor force qualification or human capital: Higher education levels lead to increased productivity per worker.
- Advancement in scientific knowledge and its application to production: These effects are more pronounced in the long run, although they are harder to measure.
- Other structural and institutional factors: This includes the transition from a closed to an open economy with greater international presence, inflation control, and other related factors.
Determinants of Labor Productivity
Examining the importance of two determinants: the capital-per-worker ratio and technological progress.
The Cobb-Douglas production function, which depends on technological progress over time, can be expressed as: Yt = (e^(λ*t)) * (Kt^α) * (Lt^(1-α)).