Democracy, technocracy and economic growth: evidence from 20 century Spain

Abstract

We examine the contribution of economic and institutional transitions as two potential sources of subnational economic growth in Spain. To this end, we exploit the economic reforms of the 1959 Stabilization Plan (as an example of technocratic, economy-oriented reform) and the democratic transition in 1979 in Spain as the sources of variation for a sample of 50 Spanish provinces in the period 1950-2016. Our approach is to examine the impacts by estimating the missing counterfactual scenarios using the synthetic control method. Our results unveil a positive effect for both economic and institutional transitions on subnational economic growth. A direct comparison of both transitions suggests that the effect of economic liberalization is four-fold higher than the effect of political liberalization. The average growth effect of the economic liberalization is around 40% higher relative to the counterfactual scenario and it appears to be permanent. The estimated effects are robust to the variety of placebo tests and additional robustness checks. This article also deepens the analysis of the effects of the 1959 plan and finds that the policies that generated the most positive impact were those of an “internal” nature, compared to the external ones, dependent on access to the IMF (also positive, but of lesser impact).