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Measuring Progress in the Spanish Economy:
a World KLEMS - Ivie Approach
Francisco Pérez
University of Valencia & Ivie
Madrid May 24th, 2016
Growth, accumulation and productivity in Spain
• During the last decades Spanish growth has been intense, but the
evolution of its productivity has been negative
Figure 1. Contributions to GDP growth. 1995-2012 (percentage)
4
3
2
1
0
-1
France
Net Capital
Germany
Capital quality
Italy
Hours worked
Source: AMECO, BBVA-Foundation-Ivie, EU KLEMS, TCB and own elaboration.
2
Spain
UK
Labour quality
US
TFP
GDP
Labour productivity in Spain
• The evolution of productivity per hour in Spain has been moderate
during decades when compared with that of most developed areas.
Figure 2. GDP, GDP per capita and labour productivity. Growth rate. Spain, 1995-2015
(percentage)
6
4
2
0
-2
-4
GDP
Source: AMECO, World Bank, EU KLEMS, TCB and own elaboration.
3
GDP per capita
Labour productivity
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
-6
Labour productivity in Spain
• Labour productivity and the difficulty of creating new jobs have
contributed to Spain´s stagnant convergence with advanced
economies
Figure 3. GDP per capita and labour productivity. Convergence, 1960-2015 (US=100)
Spain
EU15
Source: AMECO, World Bank, EU KLEMS, TCB and own elaboration.
4
Spain
EU15
2015
2010
2005
2000
1995
1990
1985
1980
30
1975
30
1970
40
1965
40
2015
50
2010
50
2005
60
2000
60
1995
70
1990
70
1985
80
1980
80
1975
90
1970
90
1965
100
1960
100
1960
b) Labour productivity
a) GDP per capita
Capital deepening
• The investment effort of the Spanish economy has been strong,
increasing capital endowments per worker
Figure 4. Investment effort (GFCF/GDP) and convergence in net capital per person
employed
a) GFCF/GDP. Spain, 1960-2015
(percentage)
b) Net capital per employed person,
Spain and EU15, 1970-2014 (US=100)
40
140
35
120
100
30
80
25
60
20
40
15
20
Spain
Source: BBVA-Foundation-Ivie, INE and own elaboration.
5
UE15
Source: AMECO, BBVA-Foundation-Ivie, EU KLEMS, TCB and own
elaboration.
2014
2012
2010
2008
2006
2004
2002
2000
1998
1996
1994
1992
1990
1988
1986
1984
1982
1980
1978
1976
1974
1972
0
1970
2015
2010
2005
2000
1995
1990
1985
1980
1975
1970
1965
1960
10
Improving human capital
• Improvements in educational levels have been substantial, but labour
productivity stagnated from 1985 until the arrival of the crisis.
Figure 5. Employment and labour productivity. Spain, 1980-2015
a) Employed population by educational
attainment
b) Labour productivity (1980=100)
100
200
90
180
80
160
70
60
140
50
120
40
30
100
20
80
Until lower secondary education
Non university terciary education
Source: INE and own elaboration
6
Upper secondary education
University education
Labour productivity (Y/Hours worked)
Labour productivity (Y/Labour services)
Source: AMECO, BBVA Foundation-Ivie, EU KLEMS, TCB,
World Bank and own elaboration.
2014
2012
2010
2008
2006
2004
2002
2000
1998
1996
1994
1992
1990
1988
1986
1984
60
1982
2015
2010
2005
2000
1995
1990
1985
1980
0
1980
10
Looking into the capital productivity in Spain
• The fall in capital productivity starts earlier and becomes more intense than in
other economies when the productive capital measurement is considered
Figure 6. Capital productivity
a) Capital productivity. Spain, 1980-2014
(1980=100)
b) Capital productivity. Growth rates.
International comparison, 1995-2012
(percentage)
1.0
140
0.5
120
0.0
100
-0.5
80
-1.0
60
-1.5
-2.0
40
-2.5
France
2014
2012
2010
2008
2006
2004
2002
2000
1998
1996
1994
1992
1990
1988
1986
1984
1982
1980
20
Capital productivity (Y/Net capital)
Capital productivity (Y/Capital services)
Source: AMECO, BBVA Foundation-Ivie, EU KLEMS, TCB, World Bank and own elaboration.
7
Germany
Y/Net capital
Italy
Spain
UK
Y/Capital services
US
TFP growth in Spain: two estimates
• Growth rates of TFP are close to zero when quality improvements of factors
are not accounted for, and negative when these are considered
Figure 7. TFP. Growth rate. Spain, 1980-2014
(percentage)
5
4
3
2
1
0
-1
-2
TFP (Inputs: Net capital and hours worked)
Source: AMECO, BBVA Foundation-Ivie, EU KLEMS, TCB, World Bank and own elaboration.
8
TFP (Inputs: Capital services and labour services)
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
1987
1986
1985
1984
1983
1982
1981
-3
Inputs contributions and TFP growth: international perspective
• Improvements in the quality of labour and capital services increase
the contributions of factors but, despite these changes, many
countries present significant TFP growth rates in recent decades.
Figure 8. Contributions to GDP, 1985-2012 (percentage)
a) Inputs contribution
b) Growth rate of TFP
7
3
6
MYS
5
IDN
2
IND
IRL KOR
4
1
THA PAK
AUS
ESP
CAN
3
PHL IRN
MEX
0
BELUSA
NLD ARG
GBR
2
DNKJPNFRA
AUT
FIN
2
3
4
5
Inputs (hours worked and net capital)
6
7
9
Sweden
Portugal
Mexico
Italy
Japan
Ireland
India
France
Finland
Spain
China
Note: for Argentina the period is 1985-2010
Source: AMECO, APO, BBVA Foundation-Ivie, EU KLEMS, TCB, Jorgenson and Vu (2016), OECD, World Bank and own elaboration.
United Kingdom
1
United States
0
South Korea
0
Australia
-1
DEU
ITA
Argentina
1
Germany
Inputs (labour services and capital services)
CHN
Crisis, overcapacity and TFP divergence
• The low level of activity has caused significant excess capacity in many
economies. However, in Spain this problem exists in the recent real
estate boom years and TFP has been diverging with developed
economies since 1995
Figure 9. TFP: Growth rate and levels. International comparison
a) TFP. Growth rate, 2007-2012
(percentage)
b) TFP. Levels, 1960-2015 (US=100)
2
100
90
1
80
0
70
60
-1
50
Spain
Note: for Argentina the period is 2007-2010
Source: AMECO, APO, BBVA Foundation-Ivie, EU KLEMS, TCB, Jorgenson and Vu (2016), OECD, World Bank and own elaboration.
10
EU15
2015
2010
2005
2000
1995
1990
1985
1980
1975
1970
1965
40
1960
Sweden
United Kingdom
Mexico
Portugal
Japan
Italy
Ireland
India
France
Finland
Spain
United States
South Korea
China
Australia
Argentina
Germany
-2
TFP vs Labour and Capital Productivity
• TFP can be expressed as the product of labour and capital
productivity raised to the power of their respective shares:
A = (Y/L)a (Y/K)b
• Thus, the evolution of TFP depends on the evolution of labour and
capital productivity, weighted by their shares:
DlnAt = 0.5·(at+at-1)·Dln (Yt/Lt)+0.5·(bt+bt-1)·Dln(Yt/Kt)
• If capital productivity is relatively constant, TFP follows a path that is mainly
determined by labour productivity
• If labour productivity is relatively constant, TFP follows a path that is mainly
determined by capital productivity
• Ceteris paribus, higher labour productivity contributes to higher TFP
growth. But, given the moderate labour productivity growth, lower
capital productivity results in an even lower TFP growth
11
A permanent excess of capacity in Spain?
• Capital productivity always contributes negatively to the evolution of
TFP and the evolution of TFP in the 21st century is increasingly
associated with capital productivity trajectory
Figure 10. TFP growth rates: contributions of capital productivity and labour
productivity, 1980-2014 (percentage)
a) US
Y/Net capital
Y/hours worked
TFP
Y/Capital services
Source: AMECO, APO, EU KLEMS, TCB, Jorgenson and Vu (2016), OECD, World Bank and own elaboration.
12
Y/Labour services
TFP
2014
2011
2008
2005
2002
1999
1996
-3
1993
-3
1990
-2
1987
-2
1984
-1
2014
-1
2011
0
2008
0
2005
1
2002
1
1999
2
1996
2
1993
3
1990
3
1987
4
1984
4
1981
5
1981
b) Spain
5
Which are the drivers of TFP:
Labour productivity or Capital productivity?
• Compared with the US, the negative differential that the Spanish TFP showed
in the past was due to labour productivity differences.
• However, from the beginning of the 21st century onwards the negative
differential in capital productivity has increasingly become more important
Y/Capital services
Y/Labour services
TFP
Y/Capital services
Source: AMECO, APO, EU KLEMS, TCB, Jorgenson and Vu (2016), OECD, World Bank and own elaboration.
13
Y/Labour services
TFP
2014
2011
2008
2005
2002
1999
-3
1996
-3
1993
-2
1990
-2
1987
-1
1984
-1
2014
0
2011
0
2008
1
2005
1
2002
2
1999
2
1996
3
1993
3
1990
4
1987
4
1984
5
1981
5
1981
Figure 11. TFP growth rates: contributions of capital productivity and labour
productivity, 1980-2014 (percentage)
b) Differences between Spain and US
a) Spain
(Spain-US in %)
Which are the drivers of TFP:
Labour productivity or Capital productivity?
• Compared with the US, the negative differential that the Spanish TFP showed in
the past was due to labour productivity differences.
• However, from the beginning of the 21st century onwards the negative differential
in capital productivity has increasingly become more important
Table 1. TFP growth rates: contributions of capital productivity and labour
productivity, 1980-2014 (percentage)
1980-2014
Spain
US
Spain-US
1980-2000
TFP
-0.17
0.14
-0.60
Y/Capital services
-0.69
-0.50
-0.97
Y/Labour services
0.53
0.64
0.36
TFP
0.53
0.48
0.60
Y/Capital services
-0.37
-0.47
-0.23
Y/Labour services
0.90
0.95
0.83
TFP
-0.70
-0.34
-1.21
Y/Capital services
-0.32
-0.03
-0.74
Y/Labour services
-0.37
-0.31
-0.47
Source: AMECO, APO, EU KLEMS, TCB, Jorgenson and Vu (2016), OECD, World Bank and own elaboration.
14
2000-2014
Why does capital productivity step back?: Hypothesis
• H.1: Real estate investment (including residential) crowds-out
investment in other assets  Does it block the pace of capital
accumulation in machinery and equipment?
• H.2: Unproductive overinvestment in non-residential real estate assets
 Is accumulation guided by profitability in the short-term and credit
facilities, and not by productivity?
• H.3: Insufficient investment in intangible assets  Are they essential
to value other factors?
• H.4: Business sector structure in the economy  Low weight of large
companies + weaknesses of micro enterprises?
15
H.1:Crowding out of machinery and equipment
investment?
• The accumulation rate of the most productive capital has been more
intense than that of real estate assets, residential and non-residential
Figure 12. Capital stock by assets. Spain, 1965-2013 (1965=100)
1400
1200
1200
1000
1000
800
800
600
600
400
400
200
200
0
0
1965
1967
1969
1971
1973
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
2011
2013
1400
Residential
Non-residential structures
Transport equipment
Machinery, equipment and other assets
Source: BBVA Foundation-Ivie.
16
b) Productive capital by assets
1965
1967
1969
1971
1973
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
2011
2013
a) Net capital by assets
Residential
Non-residential structures
Transport equipment
Machinery, equipment and other assets
H.2: Unproductive investments during the boom?
• The high capital gains of non-residential real estate assets in the last boom
resulted in negative costs of using warehouses, offices and premises: these
investments can be profitable in short term, but unproductive
Figure 13. User cost of capital and its components. Spain (percentage)
a) Private non-residential real estate capital, b) Total economy, international comparison,
Spain, 1995-2013
1990-2014
20
20
18
15
16
10
14
12
5
10
0
8
-5
6
Nominal interest rate
Depreciation rate
Capital gains
0
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
User cost
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
2
1997
-15
1996
4
1995
-10
Spain
USA
Germany
Note: Non-residential real estate capital includes land.
Source: Bank of Spain, BBVA Foundation-Ivie, ECB, INE and own elaboration.
Source: EU KLEMS and own elaboration
17
France
Evidence for the existence of unproductive investments
• TFP worsening in sectors more concentrated in real estate assets: it is more
likely that their investments have been guided by short-term profitability rather
than long-term productivity
Figure 14. Harberger diagram of market economy TFP growth in Spain, 2000-2007 and
2007-2011 (percentage)
b) 2000-2007
1.2
c) 2007-2011
Information and
communication
1.0
1.2
Agriculture&fishing
Mining and quarrying; electricity,
gas and water
Trade
0.6
Construction
Transportation
and storage
Machinery and equipment
Other manufacturing.
Manufacture of transport equipment
0.4
Hotels and
restaurants
0.2
Trade
Professional, scientific, technical, administration
and support service activities
0
25
50
GVA share
Source: BBVA Foundation-Ivie, INE and own elaboration.
75
Financial and
insurance
activities
Construction
0.4
0.2
Machinery and equipment
Other manufacturing
Manufacture of transport equipment
0.0
0.0
-0.2
Food products,
beverages and
tobacco
Arts, entertainment,
recreation and other
service activities
0.6
Arts, entertainment,
recreation and other
service activities
Financial and
insurance activities
Contribution to TFP growth
Contribution to TFP growth
Food products,
beverages and
tobacco
and storage
Professional, scientific, technical,
administration and support service
activities
0.8
0.8
18
Information and
communication
1.0
Hotels and
restaurants Mining and quarrying;
electricity, gas and water
supply
Basic metals and
fabricated
metal products
Transportation
100
-0.2
0
25
50
GVA share
75
100
H.3: Weak investment in intangible assets?
• Intangible capital acts as a catalyst of potential productivity gains, but the
weight of intangible investment in Spain is still low
Figure 15. Intangible assets in the market sector. International comparison, 1995-2010
(percentage of GVA)
a) Tangible and intangible GFCF over GVA
35
b) Intangible capital stock over GVA by
asset
45
40
30
35
11.9
10.7
25
15.7
30
12.1
12.3
10.0
6.7
11.6
20
12.6
11.1
6.5
9.8
9.5
25
14.2
20
15
25.8
22.9
15
10
18.4
17.0
14.5
17.2
15.4
14.2
12.9
8.0
17.0
19.8
21.4
7.2
16.8
10
10.4
10.2
5
7.7
5
3.8
0
6.0
0
Nordic France United
countries
Kingdom
EU15
Tangible assets
19
6.5
Italy
USA
Spain
Germany
Intangible assets
Notes: EU15 does not include Greece, Luxembourg and Portugal in panel b). Nordic
countries: Sweden, Finland and Denmark.
Source: INTAN-Invest, BBVA Foundation-Ivie, INE and own elaboration.
.
USA
5.7
2.9
Nordic United France Germany
countries Kingdom
Software and databases
Innovative property
4.2
2.8
3.3
EU15
Italy
Spain
Economic competencies
H.4: Many inefficient firms?
• The negative productivity trend reflects that capital and labour are used by
unproductive firms: the business sector structure favours the misallocation of
capitals
Figure 16. Employment and labour productivity by business size class. International
comparison, 2015 (percentage)
a) Employment by business size class
(percentage)
b) Labour productivity by business size
class (euros per person employed)
100
90,000
90
80,000
80
70,000
70
60,000
60
50,000
50
40,000
40
30,000
30
20
20,000
10
10,000
0
0
Spain
Micro
(0-9 empl.)
EU28
Small
(10-49 empl.)
France
Germany
Medium-size
(50-249 empl.)
United
Kingdom
Large
(250+ empl.)
Note: Data refers to the market sector, without Agriculture and Financial sector.
Source: European Commission (2015).
.
20
Micro
(0-9 emp.)
Spain
EU28
Small
(10-49 emp.)
Germany
Medium-size
(50-249 emp.)
France
Italy
Large
(250+ emp.)
United Kingdom
Future Challenges
21
•
Improvements in TFP depend on the ability of capital and labour to generate more value per unit
used of equal quality factor
•
The productivity of human capital must be driven in two ways:
• To improve educational skills to make education more effective:
• Reducing school failure and improving educational performance.
• Investing more in life-long learning: because the government spends little on unemployed
skills upgrading and companies on training employees (especially small ones, which are
the majority).
• To improve the use of human capital and to take advantage of it in enterprises, an issue which
is conditioned by the size of the company, occupations and specialization.
•
Improving the productivity of capital: the big challenge is to reduce the consequences of
misallocation of investment:
• Changing business sector structure, composed of very inefficient units: it is necessary to
increase the size of firms and improve the quality of management, boosting its
professionalization.
• Reorienting the financial system practices, particularly of banks, looking to the productivity of
investment projects and the long term instead of the real estate collateral and the short term.
• Changing the institutional framework to promote competition and combat crony capitalism.
Measuring Progress in the Spanish Economy:
a World KLEMS - Ivie Approach
Francisco Pérez
University of Valencia & Ivie
Madrid May 24th, 2016