Economic Effects of Recent Experiences of Federalism: Analysis of the Regionalization Process in Spain

Abstract

Setting limits on government action is critical to economic development. Some forms of government organization, such as market-preserving federalism, seem effective to protect property rights in the long term with good results for economic efficiency. Spain endowed its regions with “Statutes of autonomy” in the 1980s thus moving from a centralized to a decentralized form of government. It renewed and expanded some of the statutes in the 2000s. This article investigates whether these two waves of regionalization, which had their own characteristics in each region, had led to positive effects on economic performance. Using a novel autonomous region/country-matched balanced sample for the period 1950-2016, we apply the synthetic control method and compare the economic growth trajectories of Spanish regions with their synthetic control groups not affected by the regionalization process. We show that the first wave of “Statutes of autonomy” had a positive but temporary economic growth impact. By contrast, the second wave of regionalization of the 2000’s is associated with a negative growth impact.

Keywords: Autonomous Regions, Federalism, Institutions, Synthetic Control Method, Spain

JEL Classification: R11, O43, H77, K00, H11, E02