Portugal and Spain: catching up and falling behind. A comparative analysis of productivity trends and their causes, 1980-2007

A number of studies in the literature have recently explored the causes behind the European productivity slowdown from the mid-1990s onwards and the correlative increase in the productivity gap between Europe and the United States (e.g., van Ark et al, 2008; Maudos et al, 2008; van Ark and Inklaar, 2005). Much less attention has been given, however, to the specific role of the EU peripheral countries in the process. In this paper we focus on the growth performances of two of such countries: Portugal and Spain. After a period of successful catch-up relative to the EU core, the two countries, which have a number of historical and economic features in common, have recently faced increasing difficulties in closing the gap to the EU. In the last decade, Spain has shown one of the worst productivity growth records among EU-members, whereas Portugal remained quite distant from European average productivity levels, and has increased the gap in per capita income levels. In this paper an attempt is made to shed light on the causes behind the overall disappointing performance of both countries, by focusing on the role of structural change on the process. An extensive literature, from both mainstream and more heterodox streams of research, suggests that sectoral specialization may have a major impact on productivity growth, by influencing the extent to which innovation and technological progress can be achieved. In order to account for these effects, an analysis of productivity trends both at the macroeconomic and industry levels of analysis is undertaken, using growth accounting and shiftshare techniques. The analysis is based on data from the EU-KLEMS database for Spain and the EU-core, and on an update and refinement of Silva´s (2010) labor and multifactor productivity estimates for Portugal. By investigating the different sources of productivity growth between 1980 and 2007, it is argued that an important factor explaining the growth difficulties in both countries is related to their difficulties in promoting important changes in their economic structures. In particular, the recent deterioration of economic growth may be seen as reflecting their incapacity in making a strong leap towards a more ‘modern’ industry structure.