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The Spanish paradox: demand growth with productivity stagnation

Luis Cárdenas del Rey (Department of Economic Analysis and Quantitative Economics, Complutense University of Madrid, Madrid, Spain) (Complutense Institute for International Studies, Madrid, Spain)
Rafael Fernandez-Sanchez (Department of Applied Economics, Complutense University of Madrid, Madrid, Spain) (Complutense Institute for International Studies, Madrid, Spain)

Journal of Economic Studies

ISSN: 0144-3585

Article publication date: 6 August 2020

Issue publication date: 27 April 2021




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.


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.


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.


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.



We thank Enrique Palazuelos who provided insight that greatly assisted this research. In addition, for helpful comments and suggestions we are grateful to Adrián Rial, Daniel Herrero and two anonymous referees. A initial version of this paper was presented at the Complutense Institute for International Studies. The usual disclaimer applies.


Cárdenas del Rey, L. and Fernandez-Sanchez, R. (2021), "The Spanish paradox: demand growth with productivity stagnation", Journal of Economic Studies, Vol. 48 No. 4, pp. 786-803.



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