Regional Development and Structural Change: The Productivity Paradox of Spanish Peripheral Regions

Spanish objective 1 regions are mainly peripheral regions which traditionally have suffered from low accessibility to the main markets and low levels of education and entrepreneurial and management capacities. Once Spain became member of the EU the combined effects of competition in the so called “single” European market and the investments in transport and accessibility infrastructures as well as in education (tertiary education, vocational training and compulsory secondary education from 1994 onwards) boosted regional development in Spain. Spanish objective 1 regions have experienced a very important structural adjustment and a noticeable process of convergence with Europe. The effect of competition of the Central and Eastern European countries, putting aside the changes in the FDI flows, has not had an immediate impact on the Spanish regions. After joining the euro in 1999, the possibilities of generous funding at very low interest rates generated a very fast growth process during the 2000s. This growth cycle was mainly of the “extensive” type, boosted by a real state bubble which originated a huge expansion in the housing sector followed up by important increases in low productivity job creation. The competitive disadvantages of the Spanish regions have shown they side effects with the financial crisis, the burst of the real state bubble and the subsequent recession since the beginning of 2008 to the present times. The limitations of the structural change in the 2000s has placed the Spanish objective 1 regions in a very weak position to face the competition arising from other areas and countries with lower salaries and has deepened the consequences of the current crisis with unemployment levels close to 30%.