Paper #1517

Title:

Growing like Spain: 1995-2007

Authors:

Manuel García-Santana, Enrique Moral-Benito, Josep Pijoan-Mas and Roberto Ramos

Date:

February 2016

Abstract:

Spanish GDP grew at an average rate of 3.5% per year during the expansion of 1995-2007, well above the EU average of 2.2%. However, this growth was based on factor accumulation rather than productivity gains as TFP fell at an annual rate of 0.7%. Using firm-level administrative data 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, while misallocation across sectors played only a minor role. Cross-industry variation reveals that the increase in misallocation was more severe in sectors where government in fluence is more important for business success, which represents novel evidence on the potential macroeconomic costs of crony capitalism. In contrast, sectoral differences in financial dependence, skill intensity, innovative content, tradability, or capital structures intensity appear to be unrelated to changes in allocative efficiency. All in all, the observed high output growth together with increasing firm-level misallocation in all sectors is consistent with an expansion driven by a demand boom rather than by structural reforms.

Keywords:

TFP, Misallocation, Spain.

JEL codes:

D24, O11, O47.

Area of Research:

Macroeconomics and International Economics

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