Abstract
We take a long-term perspective (1900–2012) to examine the causal relationship between foreign trade and economic growth for Spain. Results from both Johansen’s (J Econ Dyn Control 12:231–254, 1988) and Toda and Yamamoto’s (J Econom 66:225–250, 1995) methodologies are quite consistent. For the first six decades of the 20th century, a sub-period characterised by an inward oriented trade policy, we find that growth is fairly independent of foreign trade. This outcome contrasts with findings for the sub-period after the Stabilisation and Liberalisation Plan (1959), where a causal network among variables is supported. We find that both exports and energy imports have been a direct cause of the growth experienced since the sixties. Empirical results from Toda and Yamamoto suggest that the rest of the imports may have also played an important role but after the incorporation of Spain into the European Community (1986).
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Notes
There are at least four basic ideas supporting the potentiality of exports as a source of economic growth. First, the foreign exchange derived from exports can be used to import productive inputs. Second, they encourage exploitation of economies of scale. Third, they stimulate technical progress by introducing knowledge. Lastly, exports imply more competition with foreign firms, which in turn leads to more productive efficiency.
More specifically, these authors found thatQuery Italian imports played, at least in the decades before the First World War (1863–1913), an important role in its GDP that in turn led to more exports. For the interwar sub-period there is no evidence of causal relationships, probably due to a general collapse of trade. It is particularly noteworthy that for the most recent sub-period analysed (1951–2004) feedback emerged between imports and exports, which the authors attribute to an increase of intra-industry trade in the country.
Kónya (2006) makes a cross-section comparison for several OECD countries of the relationship between exports and GDP in the period 1960–1997. Laurin (2012) examines a shorter, more recent period (1988–2004) in an attempt to understand the importance of both aggregate exports and imports on regional GDP.
Martín Aceña et al. (2012) provide more information about the wartime losses.
The liberalisation of foreign capital investment was established in almost all economic activities except some strategic sectors such as public services and the defence industry.
To contain inflation the government also raised interest rates, limited concession of credits, and froze wages. The legal basis for these restrictions was the Decree-Law of 21 July 1959.
In fact, until 1959 the peseta was a non-convertible currency and its exchange was established through a complex mechanism of multiple exchanges rates. After 1959 Spain adhered to the system of fixed, but adjustable, exchange rates designed at Bretton Woods.
After the SLP there was a gradual reduction of quantitative restrictions on imports (tariffs and quotas).
The 1979 international oil crisis caused a drop in energy imports that was accentuated in 1984. Despite this conjectural fall in energy imports, they remained much higher than the pre-SLP period.
The usefulness of this specific correction for the test of cointegrating rank is illustrated in the seminal paper by Johansen (2002) through a Danish data set with a similar number of observations and the same number of variables as those used here.
We have opted for testing strong causality in order to know which variable(s) bears the burden of short-run adjustment to re-establish long-run equilibrium following a shock to the system. A detailed description of the concept of strong causality, inspired on the early work of Engle et al. (1983), can be seen in Ericsson et al. (1998).
Because an intercept and trend in a levels equation implies an intercept in a difference-form equation, this empirical strategy is consistent with that adopted in Eq. (1), where an unrestricted intercept has been included.
We acknowledge that investment could be relevant in the relationship between trade openness and economic growth. Hence, Eq. (2) has also been estimated by including the real gross capital formation (GCF) in the vector of the endogenous variables for the last part of the second sub-period (1986–2012), for which the World Bank (http://data.worldbank.org/indicator) provides data of that variable for the entire sample. A summary of results can be seen in the Appendix. Although sample size is small and there is a loss of degrees of freedom derived from including the new variable (and their lags) in VAR, we can again clearly reject the null hypothesis that energy imports do not cause GDP. Moreover, once again, we can also reject the hypothesis that energy imports, non-energy imports and GDP do not cause exports. Interestingly, we also find for this short period that GCF causes exports.
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Acknowledgments
Financial support from the University Jaume I (P1·1B2012-59), the European Union FEDER founds and the Spanish Ministry of Economy and Competitiveness (ECO2013-48496-C4-1-R; ECO2014-58975-P) is gratefully acknowledged.
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Appendix
Appendix
See Table 5.
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Balaguer, J., Florica, T. & Ripollés, J. Foreign trade and economic growth in Spain (1900–2012): the role of energy imports. Econ Polit 32, 359–375 (2015). https://doi.org/10.1007/s40888-015-0021-z
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DOI: https://doi.org/10.1007/s40888-015-0021-z