Public Capital, Growth and Convergence in Spain. A Counterfactual Density Estimation Approach

The purpose of this paper is to study the dynamics of growth and convergence in Spain for the period 1965-1995. We analyse the evolution of the per capita income distribution across Spanish provinces and estimate the effects on this evolution of factors such as private, human and public capital, and an industrialisation index. We show that after a period of absolute convergence over the 60's and early 70's, the provinces polarised (club convergence) during the 80's. This polarisation process preceded a period of divergence among clubs, which began to appear during the 90's. Moreover, by estimating counterfactual densities, we show that private capital accumulation and education at graduate level have an effect on the growth process of rich provinces and can account for a relevant fraction of the actual dispersion and polarisation of incomes. In addition, we found that public capital has reduced inequalities, especially in recent years, through redistribution of incomes rather than by increasing productivity. Finally, industrialisation explains a smaller fraction of such processes once estimates are controlled for all the other growth determinants.