Latin American Economic Review

The Economic Integration of Spain: A Change in the Inflation Pattern

Alejandro C.García-Cintado

Diego Romero-Ávila

Carlos Usabiaga

Universidad Pablo de Olavide

SUPPLEMENTARYAPPENDIX

Sigma Convergence in Several Determinants of Province-level Inflation

Regarding the provincial inflation rate, by using two measures of standard deviation (unweighted and weighted by population), it can be noted that there existed convergence just in the second period.[1]See also Figure 2 in the main text, which proves highly illustrative.[2]Overall, the broad pattern of convergence, particularly over the second period under scrutiny, confirms the results derived via PANIC analysis.

We now attempt to address some likely underlying determinants of the convergence patterns exhibited by the provincial inflation rates; determinants that, given our already familiar outcomes, should be stronger in the second period considered.

An important economic variable for which there are provincial data available is the unemployment rate (quarterly data –while CPI’s frequency is monthly– from the EPA,compiled by the INE), albeit only since the third quarter of 1976 –thus just capturing a very small fraction of our first period and entirely the second one. In connection with this variable, and allowing for two different measures of standard deviation (unweighted and weighted by population), Table A1 displays signs of convergence.

Apartfrom the provincial inflation rate and the provincial unemployment rate, Table A1 conveys further information about eight relevant variables from an economic and labor point of view, whose data series have been elaborated using De la Fuente’s database (2010).In the case of some variables we have even succeeded in extending their series until recent years, by drawing on similar data from INE –primarily, from the Spanish Regional Accounting (CRE in Spanish). For our purposes,De la Fuente’s (2010) data series, due to the existence of some intricate links,[3] have the advantage of going very far back in time (until 1955) homogeneously, which enables us to cover the whole time range for the inflation data with which we work.[4]At this point, it is worth acknowledging that these data suffer from two limitations compared to the inflation data in that the former are annual (not monthly) and regional (not provincial). However, we think both shortcomings do not prove decisive for the analysis we aim to conduct. With these eight variables in mind, the question that arises is the following: Do these variables converge among the Spanish regions over the time frame chosen?In fact, our starting hypothesis is that we should see a regional convergence in these variables especially in the second period, as provincial inflation convergence is observed to be weaker throughout the first one. Through distinct theoretical channels (wage push, mark-up, etc.) the convergence in these variables could lead to convergence in provincial inflation rates –see for example Reig (2010).In this regard, the results presented in Table A1 seem to support that hypothesis, since it is quite visible that widespread convergence in the variables occurs over time. It is also remarkable that this convergence process is stronger throughout the second period (the real GVA per capita being the only exception).

In a nutshell, the convergence analysis we haveimplemented using all these variables seems to be consistent with our previous PANIC study and validates our starting hypothesis: a pattern change in the series is detected, which is translated into a stronger convergence in the second period.

References

Alcaide, J. (2003) Evolución económica de las regiones y provincias españolas en el siglo XX. Fundación BBVA, Madrid.

De Bustos, A., Cutanda, A., Díaz, A., Escribá, F.J., Murgui, M.J. and Sanz, M.J. (2008) La BD.MORES en base 2000: Nuevas estimaciones y variables. Dirección General de Presupuestos, Ministerio de Economía y Hacienda, Documento de Trabajo No. D-2008-02.

De la Fuente (2010) Series anuales de algunos agregados económicos y demográficos regionales, 1955-2009 (RegDat versión 2.3). Instituto de Análisis Económico (CSIC), mimeo.

Reig, E. (2010) The competitiveness of the Spanish regions, in Cuadrado-Roura, J.R. (Ed.) Regional policy, economic growth and convergence. Lessons from the Spanish case. Springer-Verlag, Berlin, pp 261-284.

1

Table A1: Convergence Analysis: Time Evolution of the Coefficient of Variation

Variable / First period / Second period
Inflation rate. / 1966
(relative to 1955):
+14.38% / 1978
(relative to 1955):
+9.16% / 1995
(relative to 1979):
-78,81% / 2013
(relative to 1979):
-88.00%
Inflation rate.
(with weighted standard deviation by population) / 1966
(relative to 1955):
+46.69% / 1978
(relative to 1955):
+4.50% / 1995
(relative to 1979):
-79.25% / 2013
(relative to 1979):
-82.60%
Unemployment rate. / No available data. / No available data. / 1995
(relative to 1979):
-23.39% / 2013
(relative to 1979):
-40.77%
Unemployment rate.
(with weighted standard deviation by population) / No available data. / No available data. / 1995
(relative to 1979):
-27.48% / 2013
(relative to 1979):
-42.23%
Real average wage (1): Total labor income (euros in 2000)/Total employment. / 1966
(relative to 1955):
-33.20% / 1978
(relative to 1955):
-42.42% / 1995
(relative to 1979):
-33.48% / 2007
(relative to 1979):
-58.85%
Real average wage(2): Compensation of employees (euros in 2000)/Waged employment. / 1966
(relative to 1955):
-30.42% / 1978
(relative to 1955):
-42.38% / 1995
(relative to 1979):
-32.40% / 2012
(relative to 1979):
-51.33%
Labor share in GVA (1): Total labor income (current euros)/GVA at basic current prices. / 1966
(relative to 1955):
+17.45% / 1978
(relative to 1955):
-12.24% / 1995
(relative to 1979):
-36.38% / 2007
(relative to 1979):
-54.02%
Labor share in GVA (2): Compensation of employees (current euros)/GVA at basic current prices. / 1966
(relative to 1955):
-11.92% / 1978
(relative to 1955):
-31.80% / 1995
(relative to 1979):
-38.54% / 2012
(relative to 1979):
-49.10%
Nominal unit labor cost: Average labor cost/Real productivity. / 1966
(relative to 1955):
-5.22% / 1978
(relative to 1955):
-18.01% / 1995
(relative to 1979):
-59.19% / 2012
(relative to 1979):
-73.42%
Real unit labor cost: Nominal unit labor cost/GVA deflator. / 1966
(relative to 1955):
+1.44% / 1978
(relative to 1955):
-7.52% / 1995
(relative to 1979):
-67.84% / 2012
(relative to 1979):
-59.79%
Real GVA per capita: GVA at basic constant prices (euros in 2000)/Population. / 1966
(relative to 1955):
-18.46% / 1978
(relative to 1955):
-39.43% / 1995
(relative to 1979):
-1.83% / 2013
(relative to 1979):
-8.02%
Real productivity: GVA at basic constant prices (euros in 2000)/Total employment. / 1966
(relative to 1955):
-27.46% / 1978
(relative to 1955):
-43.23% / 1995
(relative to 1979):
-37.02% / 2013
(relative to 1979):
-55.60%

Note: We refer to the standard deviation, instead of the coefficient of variation, when dealing with the inflation rate. Average labor cost: Compensation of employees (current euros)/Waged employment.

1

[1] We should underline that this outcome is affected bythe proximity of the break chosen to the inflation peak over the last decades (1977) –a particularly tumultuous periodin terms of inflation. Thus, if the break is set instead at the beginning of the 80s, a slight inflation convergence is observed in the first period too, as well as in unemployment since the start of the available series (1976).

[2] The peak observed in 1992 in the weighted standard deviation by population is basically due to the high inflation of the province of Barcelona arguably as a result of the Olympic Games.

[3] Such links make use of the different databases from CRE and of time series produced by the BBVA Foundation. BBVA data frequency is in origin bi-annual until 1989.

[4]For a longer-run analysis, the reader is referred to Alcaide (2003). BD.MORES database –see De Bustos et al. (2008)– also provides rich Spanish regional data, although it goes back in time until 1955 only with regard to a few variables. The entire data set starts in 1980.