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Internal devaluation in a wage-led economy. The case of Spain

Author

Listed:
  • Ignacio Álvarez

    (Departamento de Estructura Económica y Economía del Desarrollo, Universidad Autónoma de Madrid. Instituto Complutense de Estudios Internacionales (ICEI). Universidad Complutense de Madrid.)

  • Jorge Uxó

    (Departamento de Análisis Económico y Finanzas, Universidad de Castilla – La Mancha. Instituto Complutense de Estudios Internacionales (ICEI). Universidad Complutense de Madrid.)

  • Eladio Febrero

    (Departamento de Análisis Económico y Finanzas, Universidad de Castilla – La Mancha. Instituto Complutense de Estudios Internacionales (ICEI). Universidad Complutense de Madrid.)

Abstract

The aim of this paper is to use the theoretical distinction between wage-led and profit-led economies to consider the impact of internal devaluation policy on GDP growth for the case of Spain. We assess to what extent wage devaluation in Spain has proven useful vis-à-vis triggering an exportled strategy, boosting aggregate demand and overcoming the crisis. For said purpose, we estimate a Bhaduri-Marglin model drawing on quarterly data from Eurostat, and we expand the traditional model to take into account the effect of private debt on consumption and investment. Our main conclusion is that the Spanish economy can be characterized as a wage-led economy, and that therefore a wage share decrease proves counterproductive to growth. According to our calculations, internal devaluation policy detracted an average of 0.3 percentage points of annual economic growth during the period 2010-2016.

Suggested Citation

  • Ignacio Álvarez & Jorge Uxó & Eladio Febrero, 2017. "Internal devaluation in a wage-led economy. The case of Spain," Working Papers del Instituto Complutense de Estudios Internacionales 1705, Universidad Complutense de Madrid, Instituto Complutense de Estudios Internacionales.
    • Handle: RePEc:ucm:wpaper:1705
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    Cited by:

    1. Kapeller, Jakob & Gräbner, Claudius & Heimberger, Philipp, 2019. "Economic polarisation in Europe: Causes and policy options," ifso working paper series 5, University of Duisburg-Essen, Institute for Socioeconomics (ifso).
    2. Luis Cárdenas & Paloma Villanueva, 2021. "Flexibilization at the Core to Reduce Labour Market Dualism: Evidence from the Spanish Case," British Journal of Industrial Relations, London School of Economics, vol. 59(1), pages 214-235, March.
    3. Piotr Nowaczyk & Joanna Hernik, 2020. "Adopting the Euro will Cause an Increase in Prices: A Study on Inflationary Processes in Euro Area Member States," European Research Studies Journal, European Research Studies Journal, vol. 0(4), pages 377-403.

    More about this item

    Keywords

    Distribution; Demand; Wage share; Bhaduri-Marglin model; Debt;
    All these keywords.

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