Accounting for Spanish Economic Development 1850-2019

Abstract

By conducting wedge-growth accounting, we assess the contribution of the economic forces (expressed as wedges in the equilibrium conditions of the neoclassical growth model) driving Spanish economic growth from 1850 to 2019. We find that declining investment and capital-efficiency wedges slowed down Spanish economic growth and downsized the labour share from 1850 to the First World War. The crisis of the 1930s (Great Depression and Civil War) was primarily driven by the decrease of the labour-efficiency wedge. The simultaneous increase of both efficiency wedges drove the Spanish economic miracle of the 1960s, which was preceded by a large increase in the investment wedge, resulting in a significant rise of the investment rate. From the mid-1970s, the declining capital-efficiency wedge was the primary force driving the fall of the labour share and the output growth slowdown. However, the labour wedge drove the medium-term fluctuations of output, labour, and investment.

Keywords: Growth Accounting, Capital-Efficiency Wedge, Labour-Efficiency Wedge, Labour Wedge, Investment Wedge, Resource Constraint Wedge, Output, Labour Share, Hours Worked, Investment, Spanish Economic Growth, Wedge-Growth Accounting

JEL Classification: E13, E17, E25, O41, O47