Regional Exports and Economic Growth: The Case of Spanish Regions

By Martin, Miguel-Angel Galindo; Herranz, Agustin Alvarez | International Advances in Economic Research, February 2006 | Go to article overview

Regional Exports and Economic Growth: The Case of Spanish Regions


Martin, Miguel-Angel Galindo, Herranz, Agustin Alvarez, International Advances in Economic Research


Abstract

Different variables have been considered growth enhancing. Traditionally, physical capital, human capital, and public capital have been considered. While the first two variables have been considered positive factors, the latter shows an ambiguous effect. The literature has also considered the role of exports in the economic growth process, introducing several arguments that test the hypothesis that exports are growth enhancing. One argument to be considered is that higher exports can increase total factor productivity due to returns to scale and that exports are an effective means to introduce advanced technology. To test this argument, an empirical analysis considered three possibilities, an export model, a demand model, and a mixed model that combined both. This empirical analysis was carried out for the various Spanish regions. (JEL 018)

Introduction

Traditionally, economists have been worried about analyzing the factors that affect the evolution of the countries, showing the means or instruments that are growth enhancing. Traditionally, a cross-nation analysis has been developed, but in the last decades, improvement regional data have favored the regional studies also.

Different economic growth models have been developed, mainly Neoclassical exogenous and endogenous. The former states that convergence among regions will be achieved, and the policy maker is not capable of enhancing economic growth. However, endogenous growth models state the opposite and facilitate the introduction of new economic and sociological variables in the analysis, such as fiscal policy, human capital, social capital, and efficiency, trying to give a wider explanation on the economic growth process.

The main goal of the paper is to study the effects of exports in the Spanish regional communities, assuming that trade activity is growth enhancing. The next section will consider these relationships in a theoretical way. The following section will carry an empirical analysis considering three possibilities: An export model, a demand model, and a mixed model that is a combination of both. The last section concludes the paper.

Theoretical Analysis

As we have indicated in our introduction, different variables have been considered to have a positive effect on economic growth. Traditionally, physical capital has been included, including the technological advances. In this sense, countries that incorporate new technologies would be more competitive in increasing their economic growth [Bernard and Jones, 1996a, b, c; Galor and Tsiddon, 1997; Keefer and Knack, 1997].

Public capital is also considered in the literature, but its effects are ambiguous. An improvement in public structures could be growth enhancing, but the necessity of finance, such expenditure, reduces or eliminates this positive effect. Taxes will increase, reducing the economics agent's resources to invest [Barro, 1997; Shibata and Ihori, 1998; Foley and Michl, 1999].

Human capital would also be a variable to take into account in the economic growth analysis. Lucas [1988] was one of the first authors that considered human capital as an alternative to the technological process to improve growth. Different authors have shown the positive effects of this variable on economic growth [Romer, 1990; Mankiw et al., 1992; Barro, 1991, 1997; Benhabid and Spiegel, 1994; Galindo and Alvarez, 2004]. We can summarize such effects in two ways. First, it facilitates the assimilation of technical progress. Second, it reduces social strains that would reduce competitiveness.

Literature on economic growth has also considered the role of exports in the economic growth process, introducing several arguments that test the hypothesis that exports are growth enhancing. One argument to be considered is that higher exports can increase total factor productivity because it is possible to use the returns to scale, and also because they are an effective mean to introduce advanced technology [Balassa, 1978; Grossman and Helpman, 1990; Barro and Sala-i-Martin, 1995; Frankel and Romer, 1999]. …

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