Writing the Paper John W. Prados The University of Tennessee.
Growth and Wellbeing in the Long-run: Spain in the Italian Mirror by Leandro Prados de la Escosura...
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Transcript of Growth and Wellbeing in the Long-run: Spain in the Italian Mirror by Leandro Prados de la Escosura...
Growth and Wellbeing in the Long-run: Spain in the Italian Mirror
by Leandro Prados de la Escosura(Universidad Carlos III, Madrid)
Banca d’Italia, Roma, 9 November 2011
Trends in Real Output per Head in Preindustrial Spain (11-year moving averages) (1850/59 = 100) [logs]
4.1
4.2
4.3
4.4
4.5
4.6
4.7
Growth of Output per Head (%)
1280/9-1340/9 0.12
1340/9-1370/9 -0.69
1370/9-1590/9 0.15
1590/9-1670/9 -0.18
1670/9-1810/9 0.11
1810/9-1850/9 0.44
1280/9-1850/9 0.04
Spain and Italy: Real Output per Head, 1280-1850 (1850/59 = 100) (11-year moving averages) (logs)
4.2
4.3
4.4
4.5
4.6
4.7
4.8
4.9
5
1280
1295
1310
1325
1340
1355
1370
1385
1400
1415
1430
1445
1460
1475
1490
1505
1520
1535
1550
1565
1580
1595
1610
1625
1640
1655
1670
1685
1700
1715
1730
1745
1760
1775
1790
1805
1820
1835
1850
Spain Italy
Spain’s: Italy’s Mirror Image
• Italy In phases of demographic stagnation or decline, -> population pressure on resources relaxes => improvement in per capita income
• Spainunder sluggish or negative population growth => falling output per head (and vice versa)
=> a frontier economy up to the 16th century
- 1600 onwards, crops expanded at the expense of pasture
Spain and Italy in European Perspective: Per Capita GDP Levels (U.K. 1850 = 100) (1990 G-K $)
20
30
40
50
60
70
80
90
100
110
1300 1348 1400 1500 1570 1600 1650 1700 1750 1800 1850
UK Netherlands Belgium Germany France Italy Spain Sweden
The Early 19th Century: A Turning Point in Spain
• Population increase
• Agricultural productivity growth
• Urbanization
• New institutional framework
• GDP per head growth… despite the loss of empire
• But … relative decline
Real Per Capita GDP, 1850-2007
100
1000
10000
Long-term Growth, 1850-2007: New Evidence
• Real GDP multiplied by 57
• Real GDP per head by 19
• Three main phases of growth:
• 1850-1950
• 1951-1974
• 1975-2007
• Continuity over 1850-1950 View of 19th C failure and 20th C success, rejected
Phases of Economic Growth 1850-2007 (%)GDP GDP per Head Population
1850-2007 2.6 1.9 0.7
1850-1950 1.4 0.8 0.61951-1974 6.5 5.5 1.01975-2007 3.2 2.5 0.7
1850-1883 1.8 1.4 0.41884-1920 1.3 0.7 0.61921-1929 3.8 2.8 1.01930-1952 0.8 0.0 0.91953-1958 4.7 3.9 0.81959-1974 6.9 5.8 1.11975-1986 2.5 1.8 0.71987-2007 3.6 2.9 0.7
GDP Growth Decomposition, 1850-2007 (%)
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
1850-1883 1884-1920 1921-1929 1930-1952 1953-1958 1959-1974 1975-1986 1987-2007
Per Capita GDP Population
Long Swings (1850-2007)
• Long swings differ from trend growth due to economic policy, international integration and technological changes
• 1850-83 Acceleration: Reconstruction, openness, capital inflows
• 1883-1920 Deceleration: Stability but isolation
• 1920-29 Acceleration: Govt intervention and capital inflow
• 1929-52 Depression, Civil War, Autarchy
• 1952-58, Growth with hardly any institutional change
• 1958-74, Accelerated growth and cautious opening up
• 1974-86, Deceleration: the costs of the transition to democracy
• 1986-2007, Growth recovered after accession to European Union
Spain’s Relative Per Capita GDP (%) (2005 EKS $)
0.00
0.20
0.40
0.60
0.80
1.00
1.20
1.40
1850
1854
1858
1862
1866
1870
1874
1878
1882
1886
1890
1894
1898
1902
1906
1910
1914
1918
1922
1926
1930
1934
1938
1942
1946
1950
1954
1958
1962
1966
1970
1974
1978
1982
1986
1990
1994
1998
2002
% UK % France % Germany % Italy % USA
Growing up, Falling Behind, Catching Up
• 1810-1850, economic activity grew faster than population, but slow per capita income (0.4 %) => Retardation
• 1850s-1914, per capita GDP growth parallel to a widening gap with the Core => Growth and backwardness paradox
•
• World Wars sluggish growth and backwardness
• 1920s dynamism and a mild Great Depression, more than offset by the Civil War
• Late 20th century: Growth and Catching-up …but not convergence
What’s behind GDP per Head?
• GDP per capita = GDP/hour x Hours/person
• Long-run labour productivity growth (1920s, 1953-1986)
• Hours per person: long-term decline
• From 1975 onwards: * labour quantity and productivity, evolved inversely
- 1975-86: employment destruction, more than offset by a productivity surge
- 1987-2007: productivity slowdown, offset by the increase in hours worked
* opposite trends in GDP per head and per hour worked
GDP per Person and per Hour, 1850-2007
100
1000
10000
PIB per capita PIB/hora
Per Capita GDP Growth Decomposition (%)Per Capita GDP per Hours worked
GDP hour worked per person
1850-2007 1.9 2.0 -0.2
Panel A.1850-1950 0.8 0.9 -0.11951-1974 5.5 5.5 0.01975-2007 2.5 2.9 -0.5
Panel B. 1850-1883 1.4 1.2 0.21884-1920 0.7 1.0 -0.31921-1929 2.8 2.0 0.81930-1952 0.0 0.0 0.01953-1958 3.9 4.3 -0.51959-1974 5.8 6.3 -0.51975-1986 1.8 6.1 -4.41987-2007 2.9 1.1 1.7
Per Capita GDP Growth Decomposition (%)
-5.0
-3.0
-1.0
1.0
3.0
5.0
7.0
1850-1883 1884-1920 1921-1929 1930-1952 1953-1958 1959-1974 1975-1986 1987-2007
GDP per hour worked Hours worked per person
Italy: Per Capita GDP Growth Decomposition (%)
Labour Productivity and Structural Change (upper bound)
-1.00
0.00
1.00
2.00
3.00
4.00
5.00
6.00
1850-1883 1883-1920 1920-1929 1929-1952 1952-1958 1958-1974 1974-1986 1986-2000
Internal Productivity Structural Change
Italy: Labour Productivity and Structural Change (upper bound)
Main Comparative Results
Italy: BGZ (2011)•Modest growth prior to WWII … but spurts in 1880-1913 and 1938-51•Golden Age acceleration: productivity growth across the board & structural change
• Productivity slowdown since 1993: the role of services
Spain•Mild pre-1950 productivity growth & structural change(except 1920s)•Acceleration 1953-86: the Golden Age and ‘Transition’•Dramatic slowdown since 1986 (EU accession)
Hours Worked per Occupied-Year, 1850-2007
1700
1900
2100
2300
2500
2700
2900
1850
1854
1858
1862
1866
1870
1874
1878
1882
1886
1890
1894
1898
1902
1906
1910
1914
1918
1922
1926
1930
1934
1938
1942
1946
1950
1954
1958
1962
1966
1970
1974
1978
1982
1986
1990
1994
1998
2002
2006
Horas/año por ocupado
Italy: Hours worked per occupied-year, 1861-2011
Determinants of Labour Productivity
• Physical capital per occupied (hour)
• Human capital per occupied (hour)
• Efficiency gains (PTF)
Capital Input: Growth Rate (%)
Composition of Capital Stock in Spain (%) (1995 Pesetas)
0.00
0.10
0.20
0.30
0.40
0.50
0.60
0.70
1850
1855
1860
1865
1870
1875
1880
1885
1890
1895
1900
1905
1910
1915
1920
1925
1930
1935
1940
1945
1950
1955
1960
1965
1970
1975
1980
1985
1990
1995
2000
Dwellings Other Constructions Transportation Equipment Machinery and Equipment
Italy: Composition of Capital Stock (%)
Labour Quantity (hours worked): Growth Rate (%)
Capital Deepening: Growth Rate (%)
Human Capital: Alternative Measures
Education based(Mincer)
• Educational levels (years of schooling) weighted by education returns
• It does not consider other forms of human capital
Income based(Jorgerson)
• Skill levels of workforce weighted by relative wages
• Data demanding …
• assumption of perfect competition in relative remunerations
Labour Quality Measures: Income and Education
90
100
110
120
130
140
150
160
170
180
190
Jorgenson RR 7%
Labour Quality Growth: Income and Education Approaches(%)
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1850-1883 1884-1920 1921-1929 1930-1952 1953-1958 1959-1974 1975-1986 1987-2000
Jorgenson Education
Sources of Labour Productivity Growth (%)
(I) (II) (III) (IV) (V) (VI) (VII)
Income-based Approach Education-based Approach
GDP per Land Capital Labor TFP Labor TFP
hour worked Input Quality Quality
1850-2000 2.1 0.0 0.8 0.2 1.1 0.3 1.0
Panel A.
1850-1950 0.9 0.0 0.5 0.1 0.3 0.1 0.3
1951-1974 5.5 0.0 1.2 0.6 3.7 0.4 3.9
1975-2000 3.4 0.0 1.4 0.4 1.7 0.7 1.3
Panel B.
1850-1883 1.2 -0.1 0.6 0.0 0.6 0.1 0.5
1884-1920 1.0 0.1 0.6 0.1 0.2 0.1 0.3
1921-1929 2.0 -0.1 0.6 0.5 1.1 0.1 1.4
1930-1952 0.0 0.0 0.2 0.0 -0.1 0.3 -0.5
1953-1958 4.3 -0.2 1.3 0.8 2.4 0.4 2.9
1959-1974 6.3 0.0 1.2 0.9 4.2 0.5 4.6
1975-1986 6.1 0.0 1.9 0.9 3.4 0.8 3.4
1987-2000 1.1 0.0 0.8 0.1 0.2 0.6 -0.3
Sources of Labour Productivity Growth Variable Factor Shares (Income)
-1.0
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
1850-1883 1884-1920 1921-1929 1930-1952 1953-1958 1959-1974 1975-1986 1987-2000
Land Capital Labor Quality TFP
Sources of Labour Productivity Growth Variable Factor Shares (Education)
-1.0
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
1850-1883 1884-1920 1921-1929 1930-1952 1953-1958 1959-1974 1975-1986 1987-2000
Land Capital Labor Quality TFP
Italy: Sources of Labour Productivity Growth (%)
The Sources of Labour Productivity Growth• TFP accounts for half the labour productivity increase 1850-2000
• Factor accumulation ruled prior to 1950 and since 1987
• TFP, hegemonic in the 1920s and 1953-1986
• Labour productivity and TFP growth, closely associated1920s, 1951-74, labour productivity acceleration mostly due to TFP
• Broad capital accumulation and efficiency gains, complementary for labour productivity growth
• TFP and capital main spurts coincide with:
- the impact of the railways (1850s-80),
- the electrification (the 1920s and 1950s)
- adoption of new vintage technology in the Golden Age
Why the recent Labour Productivity Slowdown?
• Have Italy & Spain exhausted their catching-up potential?
• TFP gains from structural change, exhausted
• Spain, industry, efficient and small (17.5% GDP in 2007), tiny agriculture (2.9% GDP in 2007), but large services
• Challenges
- low productivity in construction and services (IT)
- more education does not imply more human capital
Income Distribution and Poverty
• How has per capita GDP been distributed over time?
• Did growth reach the bottom of the distribution?
• Was there a growth-inequality trade-off?
• Did growth and inequality changes have an impact on absolute poverty?
How to measure inequality?
Gini = ∑ Gi pi πi + ∑ ((yp – yl)/ yl) πl pp+ L [A] [B] [L]
• ∑ Gi pi π i (Gini A), weighted sum of within-group inequality
• ∑ ((yp – yl)/ yl) πl pp (Gini B), between-group inequality
• (L) is the overlapping component (residual)
Gini and its Components, 1850-2000
0.00
0.10
0.20
0.30
0.40
0.50
0.60
Gini A Gini B Gini
Inequality Trends
• Wide inverted W, peaks in 1918 and 1953
• Between-group inequality ruled the pre-1960 era
• Within-group inequality ruled the post-1960 era
=> social concern for different kinds of inequality before and after 1960
• When inequality plotted against real per capita income, a single Kuznets curve
The Kuznets Curve in Spain (Kernel Fit Epanechnikov, h=0.4042)
.28
.32
.36
.40
.44
.48
.52
6.5 7.0 7.5 8.0 8.5 9.0 9.5 10.0
Per Capita GDP (log)
Gin
i (H
odric
k-P
resc
ott)
Inequality before and after Franco
Why Inequality fell in the globalization backlash? •Forces pushing for re-distribution - unions’ increasing bargaining power - labour unrest- menace to property rights
=> the drop in capital and land returns relative to labour more than offset the rise in wage dispersion
•Interwar inequality decline, at odds with a war of attrition on income (wealth) distribution
Early Francoism: rising inequality•inequality fell within labour and capital but polarization increased
Late Francoism •Redistribution => inequality reduction
Comparative Findings• Political factors conditioned income inequality trends
• WWs increased inequality with no permanent effects
• No impact of progressive taxation until the 1980s
• The inequality rise in early Francoism, not explained by property income concentration, but by its share in GDP => divisive effects of Civil War
• Spain converged to OECD, except for the Autarchy
• Spain and Latin America: divergence since the 1950s
Gini in Spain and OECD Countries, 1870-2000
20.0
25.0
30.0
35.0
40.0
45.0
50.0
55.0
1870 1880 1890 1900 1913 1929 1938 1950 1960 1970 1980 1990
Spain UK Italy Norway Denmark USA Japan
Italy: Income Inequality, 1861-2011
Gini in Spain and Latin America, 1870-2000
25.0
30.0
35.0
40.0
45.0
50.0
55.0
60.0
1870 1880 1890 1900 1913 1929 1938 1950 1960 1970 1980 1990
Spain LatAm4 LatAm6 LatAm15 LatAm16
Was There Economic Polarization?
• Polarization: An increase in between-group inequality (a growing gap between proprietors and workers) parallels a decline in within-group inequality
• A measure of polarization:
Ratio of ‘between-group’ inequality to ‘within-group’ inequality (Zhang & Kanbur 2001)
Economic Polarization (Gini)
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
Polarization Gini
Did growth and income distribution changes have an impact on absolute poverty?
Poverty reduction depends on the
• Growth of average incomes
• Changes in income distribution
• How sensitive poverty is to growth and inequality
But also on the initial
• inequality level
• level of development
• poverty line
Poverty Headcount (%)(Poverty Line 1985 Geary-Khamis $ 2 a day per person)
0.000
0.050
0.100
0.150
0.200
0.250
0.300
0.350
0.400
0.450
0.500
1850 1860 1870 1880 1890 1900 1913 1920 1925 1929 1935 1950 1955 1960 1965 1970 1975
$2 Poverty Headcount
Poverty Trends• A long run decline in absolute poverty,
with reversals in the early 20th Century and during Autarchy
• Poverty reduction at a different speed:
- slower before World War I => the impact of growth on poverty weakened with rising inequality & low initial development
- faster, and accelerating, in the 20th Century once the initial income constraint was released
=> by the end of Francoism, absolute poverty < 2%
• Growth plus inequality fall (Interwar; since 1950s) => reduction in absolute poverty