Growing Like Spain: 1995-2007

53 Pages Posted: 18 Apr 2016 Last revised: 13 May 2019

See all articles by Manuel García-Santana

Manuel García-Santana

Universitat Pompeu Fabra

Enrique Moral-Benito

Banco de España; Universidad Carlos III de Madrid

Josep Pijoan-Mas

Centre for Monetary and Financial Studies (CEMFI); Centre for Economic Policy Research (CEPR)

Roberto Ramos

Banco de España

Multiple version iconThere are 2 versions of this paper

Date Written: March 2016

Abstract

Measured TFP fell at an annual rate of 0.7% in Spain during the boom years of 1995 to 2007. Using administrative data from the quasi-universe of firms for all sectors we show that deterioration in the allocative efficiency of productive factors across firms was at the root of the low TFP growth in Spain. Cross-industry variation reveals that the increase in misallocation was more severe in those sectors where connections with public officials are more important for business success, which represents novel evidence on the potential macroeconomic costs of crony capitalism. We write and estimate a simple model of cronyism in which heterogeneous firms invest in political connections. The model is consistent with the facts that (a) there is more dispersion in firm productivity in those sectors more prone to cronyism and (b) a general decline in the quality of institutions generates a larger increase in the dispersion of firm productivities in those sectors more prone to cronyism. Our quantitative exercise concludes that the institutional decline over this period costed 1.9% growth in TFP per year and a 0.8% annual increase in the resources spent by firms in establishing political connections.

Keywords: Cronyism, Misallocation, Spain, TFP

JEL Classification: D24, O11, O47

Suggested Citation

García-Santana, Manuel and Moral-Benito, Enrique and Pijoan-Mas, Josep and Ramos, Roberto, Growing Like Spain: 1995-2007 (March 2016). CEPR Discussion Paper No. DP11144. Available at SSRN: https://ssrn.com/abstract=2766435

Manuel García-Santana (Contact Author)

Universitat Pompeu Fabra ( email )

Enrique Moral-Benito

Banco de España ( email )

Alcala 50
Madrid 28014
Spain

Universidad Carlos III de Madrid ( email )

CL. de Madrid 126
Madrid, Madrid 28903
Spain

Josep Pijoan-Mas

Centre for Monetary and Financial Studies (CEMFI) ( email )

Casado del Alisal 5
28014 Madrid
Spain
+34 91 429 0551 (Phone)
+34 91 429 1056 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Roberto Ramos

Banco de España ( email )

Alcala 50
Madrid 28014
Spain

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