The Spanish paradox: demand growth with productivity stagnation

Luis Cardenas del Rey and Rafael Fernandez-Sanchez

Journal of Economic Studies, 2020, vol. 48, issue 4, 786-803

Abstract: Purpose - This paper studies one of the most paradoxical facts of the Spanish economic growth during the period 1982–2007: high growth of investment and aggregate demand accompanied by the stagnation of labor productivity, especially from 1994. Design/methodology/approach - The authors propose two hypotheses: first, that the productive structure neutralized the mechanisms that link investment with productivity, essentially due to the low capital efficiency of the job-creating sectors (JCs); and consequently, investment drove production almost exclusively through employment, generating a trade-off between employment and productivity. Findings - The econometric results find evidence in favor of both hypotheses applying a time-series methodology (ARIMA) to EU KLEMS data for a period of 25 years and 25 industries of the Spanish economy. Originality/value - The first contribution of this paper is to offer an interpretation of the phenomenon from a perspective that combines elements of productive supply and aggregate demand, representing a novel contribution to the specialized literature. In addition, the authors show how the Kaldor-Verdoorn law could be neutralized due to employment creation (Okun's law) and the presence of a productivity-employment trade-off.

Keywords: Spanish economic growth; Productivity; Investment; Productive structure; Kaldor-Verdoorn; Okun's law; E12; E22; E24 (search for similar items in EconPapers)
Date: 2020
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Persistent link: https://EconPapers.repec.org/RePEc:eme:jespps:jes-10-2019-0459

DOI: 10.1108/JES-10-2019-0459

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