Public Capital, Productive Efficiency and Convergence in the Spanish Regions (1964-93)

This paper analyses the behaviour of productive efficiency in the Spanish regions for the period 1964–93. From a growth accounting approach, it describes the regional evolution of total factor productivity (TFP'), based on a private inputs production function. A stricter measure of efficiency is then quantified, which is not equivalent to Solow's residual, since public capital is included in the production function and constant returns to scale are not imposed. Finally, on the basis of the measures of total factor productivity and efficiency, the study discusses the existence of technological convergence among Spanish regions and the role played in it by public capital. The renewed interest in the analysis of the process of growth reflected in economic literature in recent years has also occurred in the case of the Spanish economy, with some peculiarities which are worth mentioning. In the 1980s, two important institutional changes took place: a profound political and administrative decentralization, the regions now being autonomous in many decisions on public expenditure, and the incorporation of Spain into the European Community, which as it is well known has a powerful regional policy. Both changes have meant that the analysis of regional economies, and especially their growth paths, have received much more attention from politicians and economists, and even from the population in general. In particular, intense discussion has taken place regarding the effects of development policies and on criteria for geographical distribution of infrastructures. In both cases, much attention has been paid to discussing their capacity to contribute to convergence among the different regions. As a consequence of this greater interest in the analysis of growth from a regional perspective, efforts have also been made to improve the relevant statistical information. In particular, statistical series have been drawn up for investment and accumulated capital stock in each region, both private and public. ' This information, only recently available and the first of its kind, as far as we know, in the European regions, substantially broadens the possibilities of research into the Spanish case in this field, where before not even the simplest exercises in growth accounting could be attempted. Further‐more, since the series now available allow the time dimension of growth analysis to be combined with the regional dimension, it is possible to work with a panel of data and apply the corresponding techniques. This article analyses the growth of the Spanish economy over the period 1964–93, during which it can be observed that the per capita income levels of the Spanish regions converged. The objective of the study is to evaluate this process of convergence in income from the perspective of the productive efficiency of the regions, in three different ways. First, Section I considers the importance of the contributions of the private factors of production and of improvements in total factor productivity to the growth of output. Secondly, section II studies the existing relationship between the standard measure of efficiency (Solow's residual or TFP') and a stricter measure when the endowments of public capital are considered. Section III analyses whether or not the convergence in per capita income