Tuesday, 29 November 2016

Long Run Growth in Spain: Evidence from Historical National Accounts

Leandro Prados de la Escosura
 (Universidad Carlos III,
CEPR, Groningen, and CAGE)
Can we rely on historical estimates of GDP to assess output and material welfare in the long run? 

In the early days of modern economic quantification, Kuznets (1952: 16-17), noticed the “tendency to shrink from long-term estimates” on the grounds of “the increasing inadequacy of the data as one goes back in time and to the increasing discontinuity in social and economic conditions”. Cautious historians recommend to restrict the use of GDP to societies that had efficient recording mechanisms, relatively centralised economic activities, and a small subsistence sector (Hudson, 2016; Deng and O’Brien, 2016). But should not the adequacy of data be “judged in terms of the uses of the results” (Kuznets, 1952: 17)? 

A new dataset

It is with these caveats that a new set of historical national accounts, with GDP estimates from the demand and supply side, is presented for Spain as the basis to investigate its modern economic growth (Prados de la Escosura, 2016b). 
Historical output and expenditure series are reconstructed for the century prior to the introduction of modern national accounts. The new series are built from highly disaggregated data grounded on the painstaking research carried out during the last decades. 
Then, available national accounts are spliced through interpolation, as an alternative to conventional retropolation, to derive new continuous series for 1958-2015 (Prados de la Escosura, 2014, 2016a). Later, the series for the ‘pre-statistical era’ are linked to the spliced national accounts providing yearly series for GDP and its components over 1850-2015. Finally, on the basis of new population and labour force estimates, GDP per head and labour productivity are derived (the dataset can be accessed at http://espacioinvestiga.org/bbdd-chne/?lang=en)

What do the data show? 

Aggregate economic activity multiplied fifty times between 1850 and 2015, at an average cumulative growth rate of 2.4 per cent per year. Four main phases may be established: 1850-1950 (with a shift to a lower level during the Civil War, 1936-1939), 1951-1974, 1975-2007, and 2008-2015, in which the growth trend varied significantly. 

Figure 1. Real GDP and GDP per head (2010=100) (logs)

But to what extent did a larger amount of goods and services affect individuals’ living conditions? Since population trebled, real GDP per head experienced nearly a 16-fold increase, growing at an annual rate of 1.7 percent. Such an improvement took place at an uneven pace. Per capita GDP grew at 0.7 per cent over 1850-1950, doubling its initial level. During the next quarter of a century, the Golden Age, its pace accelerated more than 7-fold, so by 1974 per capita income was 3.6 times higher than in 1950. Although economic progress slowed down from 1975 onwards, and the rate of per capita GDP growth shrank to one-half that of the Golden Age, the level of per capita GDP more than doubled between 1974 and 2007. The Great Recession (2008-13) shrank per capita income by 11 per cent, but, by 2015, its level was still 83 per cent higher than at the time of Spain’s EU accession (1985).
What steered such a remarkable rise in product per capita? GDP per capita depends on the amount of work per person and how productive this effort is. GDP per capita and labour productivity (measured as GDP per hour worked) evolved alongside over 1850-2015, even though, as the amount of hours worked per person shrank labour productivity grew at a faster pace –it increased 23-fold against 16-fold for GDP per capita. 

Figure 2. Per Capita GDP and its Components, 1850-2015 (2010=100) (logs)

Behind the decline in hours worked per person the main element is the reduction in hours worked per fully occupied worker, which fell from 2,800 hours per year in mid-nineteenth century to less than 1,900 in the early twentieth-first century. Thus, long-term gains in output per capita are entirely attributable to productivity gains, with phases of accelerating GDP per capita, such as the 1920s or the Golden Age (1950-1974), matching those of faster labour productivity growth. 
A closer look at the last four decades reveals, however, significant discrepancies, with phases of acceleration in labour productivity correspond to those of GDP per person slowdown, and vice versa. Thus, periods of sluggish (1975-84) or negative (2008-13) per capita GDP growth paralleled episodes of vigorous or recovering productivity growth, although in the first case, the ‘transition to democracy’ decade, labour productivity offset the sharp contraction in hours worked –largely resulting from unemployment- and prevented a decline in GDP per head. Conversely, the years between Spain’s accession to the European Union (1985) and the eve of the Great Recession (2007), exhibited substantial per capita GDP gains while labour productivity slowed down. Thus, during the three decades after Spain’s accession to the EU, in which grew at 3 per cent per year, doubling its GDP per head, the increase in hours worked per person contributed more than half of it. It can, then, be concluded that since the mid-1970s the Spanish economy has been unable to combine employment creation and productivity growth, with the implication that sectors that expanded and created jobs (mostly construction and services) were those less successful in attracting investment and technological innovation.

Falling behind, catching up, … and falling back again?

Spanish long-term growth has been similar to that of western nations, though Spain’s level of GDP per head appears systematically lower. 

Figure 3. Spain’s Comparative Real Per Capita GDP (2011 EKS $) (logs)

The pace of growth before 1950 was comparatively slow in Spain. Sluggish performance over 1883-1913 and failing to take advantage of its World War I neutrality to catch up, partly account for it. Furthermore, the progress achieved in the 1920s was outweighed by Spain’s short-lived recovery from the Depression, brought to a halt by Civil War (1936-39), and by a longer and weaker post-war reconstruction than in the warring western European countries after 1945. Thus, Spain fell behind between 1850 and 1950. 
The situation reverted from 1950 to 2007. The Golden Age, especially since 1960, stands out as years of outstanding performance and catching up to the advanced nations. Steady, although slower growth after the transition to democracy years (1975-84), allowed Spain to keep catching up until 2007. The Great Recession reversed the trend, although it is too soon to determine whether it has opened a new phase of falling behind. 
On the whole, Spain’s relative position to western countries has evolved along a wide-U shape, deteriorating to 1950 (except for the 1870s and 1920s) and recovering thereafter (but for the episodes of the transition to democracy and the Great Recession). Thus, at the beginning of the twentieth-first century Spanish real GDP per head represented a proportion of US and Germany’s income similar to that of mid-nineteenth century, and to that of the 1870s with regard to France and Italy, although had significantly improved with respect to the UK. 

This blog post was written by Leandro Prados de la Escosura, professor in Economic history at (Universidad Carlos III)

The working paper can be downloaded here: http://www.ehes.org/EHES_103.pdf


Deng, K. and P. O’Brien (2016), “China’s GDP Per Capita from the Han Dynasty to Communist Times”, World Economics 17, 2: 79-123.
Hudson, P. (2016), GDP per capita: from measurement tool to ideological construct, LSE Business Review (10 May 2016).
Kuznets, S. (1952), Income and Wealth of the United States. Trade and Structure, Income and Wealth Series II, Cambridge: Bowes and Bowes.
Prados de la Escosura (2016a), “Mismeasuring Long Run Growth. The Bias from Spliced National Accounts: The Case of Spain”, Cliometrica 10, 3: 251-275
Prados de la Escosura, L. (2016b), Spain’s Historical National Accounts: Expenditure and Output, 1850-2015, EHES Working Paper 103 http://www.ehes.org/EHES_103.pdf The dataset can be accessed at http://espacioinvestiga.org/bbdd-chne/?lang=en
Prados de la Escosura, L. (2014), Mismeasuring long-run growth: The bias from spliced national accounts,  (4 September) http://positivecheck.blogspot.se/

Tuesday, 15 November 2016

The mining sectors in Chile and Norway, ca. 1870-1940: the development of a knowledge gap

Kristin Ranestad is a post-doc at
University of Olso

New EHES working paper

Chile and Norway are two ‘natural resource intensive economies’, which have had different development trajectories, yet are closely similar in industrial structure and geophysical conditions. 

The questions of how and why Chile and Norway have developed so differently are explored through an in-depth comparative analysis of knowledge accumulation in one of the natural resource sectors, namely mining, from around 1870 to 1940, a period in which mining went through important technological changes and the two countries started to diverge.

Countries rich in natural resources which exhibit poor economic performance, are often understood as being ‘cursed’ and recommended to shift to industries which are not based on raw materials. A key empirical problem with the ‘resource curse’ argument, however, is that some of the richest countries in the world, such as Norway, Sweden, Canada and Australia, have developed fast-growing economies based on natural resources. Differences in economic performance across natural resource intensive economies suggests that an abundance of natural resources does not necessarily lead to stagnation. Conversely, some countries have arguably developed because of their natural resources, not despite them. Evidence suggests that natural resource intensive industries in high-income economies have been highly knowledge intensive, dynamic and innovative, they have created linkages to other industries within the economy, and developed specialisations and new industries which have contributed to complex economic structures (see e.g. Andersen 2012; De Ferranti et al. 2002; Hirsch-Kreinsen et al. 2003; Ville and Wicken 2012). In this paper, I seek to contribute to this debate by systematically comparing how knowledge accumulation occurred in one sector, namely mining. Comparing one natural resource sector allows for much more in-depth empirical analyses than on a country level and allows us to explore how natural resource industries in some countries have become highly innovative, while others have not. 

A gap started to emerge between the two mining sectors from the late nineteenth century. While the mining sector in Chile was considered technologically advanced in the mid-nineteenth century, from the late nineteenth century, Chile’s share of copper production fell dramatically, multinational created ‘enclaves’, a technological gap emerged within the sector between technologically advanced multinational companies and small-scale companies using old technology, thousands of mines were abandoned and many of ore deposits remained unexploited. The mining sector in Norway, on the other hand, was innovative, multinational companies were more integrated in the host economy and production of large-scale electro-metallurgical production started in the late nineteenth century. 
“Boletin Minero”: The mining bulletin  included articles 
about mining companies, mining production, 
new technology, debates about the mining education etc.

Why did this gap between the two mining sectors develop? I explore how comparable knowledge organisations in the two countries; formal mining education, organisations for technology transfer and geological research centres, developed technological knowledge, and how such organisations encouraged or blocked innovation for the sectors.

I use primary sources from archives in Chile, Norway and the United States in the form of written documents. Study programs and course descriptions for both countries make it possible to compare the mining instruction on higher and intermediate level in detail. Graduate lists enable comparisons of the availability of mining engineers and technicians in the sector. Student yearbooks provide unique information about all the mining engineers, technicians, and other skilled workers with expertise which was relevant for mining. The books provide information about the work, positions and travels of the graduates.  These sources, together with engineering and company reports and technical and mining journals, allow us to follow the graduates from school and into their working life, and they enable us to make in-depth comparisons of the relationship between knowledge development, education, learning and innovation (See Ranestad 2016 for an explanation of these sources).

The detailed comparison of these knowledge organisations shows that there were differences between Chile and Norway in terms of knowledge accumulation. The set of organisations in Chile blocked transfer, use and diffusion of knowledge, while in Norway the organisations facilitated the creation, transfer and adoption of knowledge, which in turn contributed to an overall dynamic and innovative mining sector. This led to a knowledge gap between the two countries. 

“Ingeniørene” : An example of the student yearbooks which
include  detailed information about the
career paths of the engineers.

The formal mining instructions in the two countries were similar, but two countries differed when it came to the availability of mining engineers, technicians and other relevant skilled workers to administrate mining companies and manage complex technology. In particular, Chile had too few formally trained workers to fill the managing and strategic technical positions at the thousands of mining companies, technical schools and research centres. Additionally, the two countries differed when it came to scholarships and funds for practical learning. During trips abroad engineers and technicians acquired valuable contacts, information of new techniques, and most importantly they acquired practical know-how with foreign technology. While continuous public and private programs were established in Norway, and most of the mining engineers went abroad to learn, scholarships were only provided sporadically in Chile, and only very few engineers went abroad. These differences in knowledge accumulation between the two countries, I argue, contributes to explain the diverging paths of the two sectors. 

The two countries also differed when it came to geological mapping, prospecting, analyses of ore and economic planning. Without a deep understanding of the geology and about the existing mineral deposits and their potential profits, new mining projects could hardly take place and the mining sector could barely advance (David and Wright 1997). In Norway, The Geological Survey of Norway, a public organisation, was established in 1858 and had in principle two main tasks. On one hand, it was to contribute to new knowledge about geological features, their scope and potential utility. On the other hand, it sought to contribute to new and more systematic surveys of the country’s geological formations and deposits (Børresen and Wale 2008). In Chile, a permanent organisation with the aim of systematically map the country’s resources, did not exist. Sporadic geological work was carried out (Villalobos 1990), but it was not nearly enough to acquire complete and in-depth knowledge of existing ore deposits, their grade and possible profits. Therefore, the several thousand mines that were abandoned and unexploited mineral deposits remained unknown. This situation endured and large mineral deposits were not found up until recent time (De Ferranti et al 2002, 58-59). In short, the lack of geological maps and ore surveys in Chile had huge implications for the progress of the mining sector by blocking the start-up of mining projects. This, in turn, was linked to the small number of mining engineers and geologists in the country, who were indispensable for this type of work. These differences in knowledge accumulation contribute to explain the emerging development gap of the two sectors.  

The underlying reason for the knowledge gap may be linked to the role of the state. In Chile, members of the National Mining Society, professors and engineers expressed the need for more geological surveys, more skilled workers and more initiatives to send engineers abroad to learn. However, although some public initiatives were implemented, they were clearly not enough to encourage continuous innovation processes in the sector. It is, perhaps, strange that not more was done in Chile to develop knowledge for mining and to learn about the existing mineral and metal deposits, considering that this was a country with huge mineral and metal ores and some of the largest copper deposits in the world. Despite this huge natural resource potential, mapping the country’s natural resources, education and knowledge transfer were simply given lower priority by the broader set of political decision-makers. In Norway, in contrast, the state was much more active in supporting knowledge development as it funded the National Geological Survey, guaranteed general schooling, financed universities, mining and technical schools and managed many of the scholarships for study travels. 

Finally, I would like to commemorate Karl Gunnar Persson, who was a kind, joyful and caring person. He was a great support to Paul and very understanding. I met him several times with Paul for dinner and drinks and we heard cheerful stories about his travels, life experiences and research. I miss him and those very nice and interesting conversations.

This blog post was written by Kristin Ranestad, University of Olso
The EHES working paper can be downloaded here: http://www.ehes.org/EHES_105.pdf

Andersen, Allan Dahl. 2012. “Towards a new approach to natural resources and development: the role of learning, 
innovation and linkage dynamics”. Int. J. Technological Learning, Innovation and Development, vol. 5 (3).

Børresen, Anne Kristine, and Astrid Wale. 2008. Kartleggerne. Trondheim: Tapir akademisk forlag.

David, Paul, and Gavin Wright. 1997. “Increasing Returns and the Genesis of American Resource Abundance”. Industrial and Corporate Change, vol. 6 (2).

De Ferranti, David, Guillermo E. Perry, Daniel Lederman, and William E. Maloney. 2002. From Natural Resources to the Knowledge Economy. Washington D. C: The World Bank.

Hirsch-Kreinsen, Hartmut, David Jacobsen, Steffan Laestadius, and Keith Smith. 2003. “Low-Tech Industries and the Knowledge Economy: State of the Art and Research Challenges”. PILOT Policy and Innovation in Low-Tech. Oslo: STEP – Centre for Innovation Research.

Ranestad, Kristin. 2015. ”The mining sectors in Chile and Norway from approximately 1870 to 1940: the development of a knowledge gap.” PhD diss., University of Geneva.

Villalobos, S. et al. (1990): Historia de la ingenieria en Chile. Santiago: Editorial Universitaria.

Ville, S., & Wicken, O. (2013). “The dynamics of resource-based economic development: Evidence from Australia and Norway”. Industrial and Corporate Change, 22 (5).