Southern Europe's Institutional Decline

Challe, Édouard; López, José Ignacio Atienza; Mengus, Eric

doi:10.2139/ssrn.2792621

Cited by 8 publications

(12 citation statements)

References 45 publications

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“…There has been an increasing number of cases of corruption of public officials brought to court for offenses during the boom years. Furthermore, the World Bank's World Governance Indicators show a clear decline of institutional quality in Spain between 1996 and 2011, which is common with other Southern European countries but not with the rest of the EU, see Challe et al (2016) for details. In particular, the indices for "Regulatory Quality" and "Control of Corruption," which are very much related to crony capitalism, show a sharp decline.…”

Section: Cronyism and Variation Across Sectorsmentioning

confidence: 99%

“…Challe et al. () show a a decline of different indices of institutional quality in Spain between 1996 and 2011. Fernandez‐Villaverde et al.…”

Section: Introductionmentioning

confidence: 99%

“…The main hypothesis of the article is that the increase in misallocation in Spain was due to a process of institutional decline, which intensified the existing problem of cronyism. Challe et al (2016) show a a decline of different indices of institutional quality in Spain between 1996and 2011. Fernandez-Villaverde et al (2013 argue that the deterioration of institutional quality happened because cheap borrowing allowed public administrations to supply large amounts of public goods, which worsened the signal-extraction problem faced by voters in evaluating their politicians.…”

Section: Introductionmentioning

confidence: 99%

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Growing Like Spain: 1995–2007

García-Santana

Moral‐Benito

Pijoan-Mas

et al. 2020

Int Economic Review

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Measured total factor productivity (TFP) fell in Spain during the boom years of 1995–2007. Using administrative data from the quasi‐universe of firms, we show that there was an increase in misallocation, which was more severe in sectors where connections with public officials are more important for business success. We write and estimate a simple model of cronyism in which heterogeneous firms invest in political connections. Our quantitative exercise concludes that the institutional decline over this period costed 1.9% growth in TFP per year and a 0.8% annual increase in the resources spent by firms in establishing political connections.

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Section: Cronyism and Variation Across Sectorsmentioning

confidence: 99%

“…Challe et al. () show a a decline of different indices of institutional quality in Spain between 1996 and 2011. Fernandez‐Villaverde et al.…”

Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

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Growing Like Spain: 1995–2007

García-Santana

Moral‐Benito

Pijoan-Mas

et al. 2020

Int Economic Review

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“…Nevertheless, this shift towards non-tradeables is probably not the entire story. As Gopinath et al (2015), for example, show for Italy, Spain and Portugal, misallocation has increased within manufacturing since the launch the euro.Finally, Challe et al (2015) describe a third mechanism whereby low interest and "soft budget constraints" reduce the incentives to maintain good governmental institutions such as rule of law. That, in turn, reduces average productivity.…”

mentioning

confidence: 99%

“…Timmer (2008), van Reenen et al (2010), Bourlès et al (2013) and Cette, Lopez and Mairesse (2014) discuss the role of labor and product market rigidities. Reis (2013), Gopinath et al (2015), Kalantzis (2014) and Challe et al (2015) discuss southern Europe. Gorton and Ordonez (2013), Cecchetti and Kharroubi (2015) and Borio et al (2015) discuss the effects of credit booms on productivity.…”

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confidence: 99%

The Pre-Great Recession Slowdown in Productivity

Cette¹,

Fernald²,

Mojon³

2015

ERWP

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In the years since the Great Recession, many observers have highlighted the slow pace of productivity growth around the world. For the United States and Europe, we highlight that this slow pace began prior to the Great Recession. The timing thus suggests that it is important to consider factors other than just the deep crisis itself or policy changes since the crisis. For the United States, at the frontier of knowledge, there was a burst of innovation and reallocation related to the production and use of information technology in the second half of the 1990s and the early 2000s. That burst ran its course prior to the Great Recession. Continental European economies were falling back relative to that frontier at varying rates since the mid-1990s. We provide VAR and panel-data evidence that changes in real interest rates have influenced productivity dynamics in this period. In particular, the sharp decline in real interest rates that took place in Italy and Spain seem to have triggered unfavorable resource reallocations that were large enough to reduce the level of total factor productivity, consistent with recent theories and firm-level evidence.Keywords: Productivity Growth; Great Recession; Misallocation; Convergence JEL Codes: D24, E23, E44, F45, O47Please address correspondence to fernaldjg@gmail.com. We thank Fabio Canova, Robert Inklaar, Robert Kolmann, Eric Leeper, Werner Roeger, and seminar participants at several institutions for helpful comments. We also thank Genevieve Denoeux, Andrew Tai and Bing Wang for helpful research assistance. John Fernald thanks the Einaudi Institute for Economics and Finance for hosting him while writing much of the paper. The views in this paper are those of the authors and do not necessarily reflect the views of the Federal Reserve Bank of San Francisco, the Banque de France, or anyone else associated with those institutions.Since the Great Recession began in 2007, productivity growth in advanced economies has continually surprised to the downside. 1 A severe downturn and slow recovery could affect productivity through various channels, both cyclical and structural. But, as we emphasize, the slowdown in advanced-economy total factor productivity (TFP) growth was broadly underway prior to the crisis. 2 The pre-Great Recession timing suggests the importance of factors other than just the deep crisis (or ensuing policy changes) itself.To understand the evolution of advanced-economy TFP growth prior to the crisis, we highlight three broad factors that have shaped the global economy in recent decades: Technical change, structural rigidities, and declining real interest rates and abundant credit. Each factor has attracted analysis and attention but they have not, typically, been considered together. For expositional clarity as well as data availability, we focus on a small number of major advanced economies: the U.S. and the four main Euro Area countries (Germany, France, Italy, and Spain).For the United States, which we assume is at the frontier of knowledge, we highligh...

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