The Spanish paradox: demand growth with productivity stagnation

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.

Citation

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. https://doi.org/10.1108/JES-10-2019-0459