EUROPEAN INTEGRATION AND THE IBERIAN ECONOMIES

EUROPEAN INTEGRATION AND THE IBERIAN ECONOMIES

EUROPEAN INTEGRATION AND THE IBERIAN ECONOMIES Edited by George N. Yannopoulos Chairman, The Graduate School of European and International Studies, University of Reading Palgrave Macmillan

ISBN 978-1-349-09714-2 ISBN 978-1-349-09712-8 (ebook) DOI 10.1007/978-1-349-09712-8 The Graduate School of European and International Studies, 1989 Softcover reprint of the hardcover ist edition 1989 978-0-333-44740-6 All rights reserved. For information, write: Scholarly and Reference Division, St. Martin's Press, Inc., 175 Fifth Avenue, New York, NY 10010 First published in the United States of America in 1989 ISBN 978-0-312-01624-1 Library of Congress Cataloging-in-Publication Data European integration and the Iberian economies / edited by George N. Yannopoulos. p. cm. "Most of the papers... were first presented at a conference organised by the Graduate School of European and International Studies of the University of Reading in July 1986"-Pref. Includes bibliographies and index. ISBN 978-0-312-01624-1 $50.00 (est.) 1. Spain-Economic policy--congresses. 2. Spain-Foreign economic relations--congresses. 3. Portugal-Economic policy--congresses. 4. Portugal-Foreign economic relations--congresses. 5. Europe -Economic integration--congresses. I. Yannopoulos, George N., 1936--. II. University of Reading. Graduate School of European and International Studies. HC385.E867 1989 337.4046--dcI9 88-18814 CIP

Contents List o/tables and Figures Preface Notes on the Contributors viii xi xiii 1 INTRODUCTION George N. Yannopoulos 1 1. Trade policy choices in the Iberian Peninsula 1 2. The role of external trade in the design of development strategies 2 3. Ideal versus realistic options in the design of development strategies 5 4. The range of available options 7 5. Integration among unequals or self-reliance 12 6. Plan of the book 16 7. Bibliography 19 2. THE BALANCE OF PAYMENTS CONSTRAINT AND GROWrn IN PORTUGAL: 1951-1984 21 A.l. Marques Mendes and A.P. Thirlwall 1. Introduction 21 2. Portuguese growth performance: 1951-1984 22 3. Specialisation effects on growth 26 4. Integration into the EEC 32 5. Policy suggestions 33 Notes and Tables 36 Bibliography 39 Appendix 39 3. SPAIN'S TRADE AND DEVELOPMENT STRATEGIES 40 Juana Castillo Gimenez, Ernest Reig Martinez and Manuel Sanchis i Marco 1. Introduction 2. Import Substitution and Economic Development 3. Industrial growth and the promotion of exports 4. Growth and Employment 5. Prospects from European Integration Tables Bibliography 40 43 46 49 51 58 64

vi 4. THE EFFECTS OF TARIFF PREFERENCES ON EXPORT EXPANSION, EXPORT DIVERSIFICATION AND INVESTMENT DIVERSION: A COMPARATIVE ANALYSIS OF THE llerian AND OTHER MEDITERRANEAN ECONOMffiS 66 George N. Yannopoulos 1. Introduction 66 2. Benefits of tariff preferences 67 3. Export Expansion effects 71 4. Export diversification effects 76 5. Foreign direct investment and tariff preferences 78 6. Concluding remarks 80 Tables 82 Bibliography 85 5. THE PORTUGUESE EXPERffiNCE OF EUROPEAN INTEGRATION - A QUANTITATIVE ASSESSMENT OF THE EFFECTS OF EFT A AND EEC TARIFF PREFERENCES 87 Armindo da Silva 1. Introduction 87 2. Methodological aspects 90 3. Selection of the regression equations 100 4. Evolution of the export distribution pattern 106 5. Evolution of the import distribution pattern 114 6. Conclusions 123 Notes and Tables 127 Bibliography 142 6. SPANISH EXTERNAL TRADE AND EEC PREFERENCES 144 Ismael Fernandez Guerrero, Agustin Gonzalez and Celestino Suarez Burguet 1. Introduction 144 2. The preferential trade agreement between Spain and the EEC 145 3. Spanish external trade 151 4. Conclusions 158 Tables 160

vii 7. PORTUGAL'S ACCESSION TO THE EEC AND ITS IMPACT ON FOREIGN DIRECT INVESTMENT 169 Elisa M. Ferreira Taveira 1. Introduction 169 2. Choice of a methodology 171 3. Empirical results 177 4. Conclusions 189 Notes 191 Annex I 192 Annexll 196 Tables 202 Bibliography 223 8. DIRECT FOREIGN INVESTMENT AND INTERNATIONAL TRADE IN SPAIN 227 Francisco Caballero Sanzo Angel Orti La/uJZ and Vicente Orts Rios 1. Introduction 227 2. International trade and foreign investment 228 3. The Spanish case 232 4. Foreign investment in Spain 235 5. Geographical distribution of investment 236 6. Conclusions and summary 237 Notes and tables 239 Bibliography 252 9. THE IBERIAN COUNTRIES IN THE EEC - RISKS AND CHANGES FOR THEIR MANUFACTURING INDUSTRIES 254 Juergen B. Donges and Klaus-Werner Schatz 1. Introduction 2. Trade patterns and determinants 3. Comparative advantages and specialisation 4. Facing increased import competition 5. Employment effects 6. Adjustment requirements 7. Conclusions and policy implications Notes and tables Bibliography Index 254 254 259 262 264 267 272 276 305 307

List of Tables and Figures TABLES 1.1 Characteristics of alternative trade and development strategies 12 2.1 Sources of growth in the Portuguese economy 37 2.2 Annual breakdown of sources of growth 38 3.1 Macroeconomic performance of the Spanish economy 58 3.2 The Spanish external sector: some basic features 59 3.3 Relative importance and structure of imports 60 3.4 Structure of Spanish exports and imports 61 3.5 Share of sectors in the total gross industrial product 62 3.6 Fast growing exports and imports 63 4.1 Indexes of standardised export performance 82 4.2 Export structure similarity 83 4.3 Inter-temporal comparisons of export structures: Southern Europe 84 4.4 Inter-temporal comparisons of export structures: Mahgreb and Mashrek countries 84 5.1 Results of the likelihood test for homoskedasticity 131 5.2 Export model : fmal regression results for the period 1972-80. 132 5.3 Export expansion effects relative to 1972 134 5.4 Export model: disaggregated results 135 5.5 Export expansion effects by commodity groups - 1978 134 5.6 Import model: final regression results for the period 1972-80 138 5.7 Import effects in value and percentage 139 5.8 Import model: fmal regression results dis aggregated by industrial sectors 140 5.9 Gross trade creating effects by commodity groups - 1978 139 6.1 Spanish imports, 1963 160 6.2 Timetable of tariff reductions 160 6.3 Spanish trade with the EEC 161 6.4 Trade between Spain and the EEC 162 6.5 Indices of Spanish and EEC trade 164 6.6a Exports of Spain and the other NICs 165 6.6b Annual rates of growth 165 6.7 Spanish exports to the EEC as a proportion of total Spanish exports 166 6.8 Spanish imports from the EEC as a proportion of total Spanish imports 167

6.9 Brussels tariff nomenclature 168 7.1 Structure of the FDI stocks according to the country of origin 202 7.2 Relative weight of FDI within each Portuguese sector of activity 203 7.3 Results of the regression analysis 207 7.4 Results of the econometric work for all manufacturing industries 216 7.5 Results of the econometric work for domestic market oriented manufacturing industries 218 7.6 Results of the econometric work for the export oriented manufacturing industries 221 8.1 Spanish long-run investments abroad by sector 240 8.2 Spanish exports (1974-83) 242 8.3 Spanish imports (1974-83) 243 8.4 Revealed comparative advantage index 244 8.5 Intra-industry trade index 245 8.6 Direct foreign investment in Spain (1977-81) 246 8.7 Trends in exports and imports 248 8.8 Spanish long-run investments abroad by country of destination 249 8.9 Geographical origin of direct foreign investment in Spain 251 9.1 Trade matrix between the Iberian countries and the EEC-9 279 9.2 Bilateral trade between Portugal and Spain 280 9.3 Sources of increase of manufactured exports 281 9.4 Spearman rank coefficients for RCA indexes 282 9.5 Commodity groups revealing competitiveness in trade with EEC-9 283 9.6 Portugal's RCA indexes in trade with Spain 284 9.7 Trade overlap coefficients for Portugal and Spain 284 9.8 Tariff-cutting commitments by the Iberian countries 285 9.9 Employment changes in Portugal and Spain from EEC entry 286 9.10 Investment ratios in Portugal and Spain 287 9.11 Comparative trends of macroeconomic distortions 288 9.12 Index of effective real exchange rates 289 A-9.1 Foreign trade indicators for Portugal 291 A-9.2 Foreign trade indicators for Spain 293 A-9.3 Revealed Comparative Advantages and Disadvantages in Portugal's foreign trade 295 A-9.4 Revealed Comparative Advantages and Disadvantages in Spain's foreign trade 298 A-9.5 Revealed Comparative Advantages and Disadvantages of Portugal in trade with Spain 301 ix

x A-9.6 Government guided industrial restructuring in Spain 303 FIGURES 1.1 National preferences for industrial production 8 1.2 Excess cost of industry at different levels of industrial production 8 1.3 Movements over time of the excess cost of industry curve 10 1.4 Choice of partners in preferential trading 14 2.1 Trade-offs between price movements and income growth 28 2.2 Quarterly pattern of relative share index: high demand 29 2.3 Quarterly pattern of relative share index: intermediate demand elasticity 30 2.4 Quarterly pattern of relative share index: low demand elasticity 31 5.1 Frequency distribution of the log of exports by partners 100 5.2 Preference coefficients in the export model: 1972-1980 110 5.3 Preference coefficients in the import model: 1972-80 119 5.4 The measurement of the welfare effects of tariff preferences 120

PREFACE Most of the papers appearing in this volume were first presented at a conference organised by the Graduate School of European and International Studies of the University of Reading in July 1986. The idea of a conference to examine the trade and development strategies of the two Iberian countries during the period of their progressive integration in the European economy was ftrst explored in the course of a visit to the University of Valencia, Spain. The experience of the two Iberian economies was rightly thought as presenting interesting insights into the links between trade and economic growth. In addition, it is a key issue to consider in assessing the potential impact of the Iberian enlargement of the European Community. The idea for such a conference was warmly endorsed by the British Institute in Spain and the British Council in London provided financial support to enable a group of colleagues from the University of Valencia to participate in the conference. Without the financial support of the British Council this conference would not have taken place. Professor Aurelio Martinez Estevez, then the Dean of the Faculty of Economics and Business Administration of the University of Valencia, supported this project with enthusiasm and helped in the recruitment of the Spanish contributors to the conference. I am very grateful for his assistance. I am also thankful to Professor Antonio Simoes Lopes, the present Rector of the Technical University of Lisbon, for his encouragement. The Universities Association of Contemporary European Studies (UACES) made a valuable financial contribution to cover the UK costs of the organisation of the Reading conference. The support of the Executive Committee of the UACES and its Secretary Mrs. Eva Evans is gratefully acknowledged. Two of the chapters in this book (chapter four and chapter nine) appeared in a slightly different form in the Journal of Common Market Studies and in Weltwirtschaftliches Archiv. I am very grateful to the editors of these two journals for their kind permission to reprint these articles in the present volume.

xii My thanks are also due to Mrs. P. Elgar and Mrs. N. Hamilton who typed so professionally what in effect proved to be a demanding manuscript. G.N. Yannopoulos Reading, April 1988

NOTES ON THE CONTRIBUTORS Francisco Caballero Sanz is Lecturer in the Department of Economics of the University of Valencia, Spain. Juana Castillo Gimenez is Lecturer in the Department of Applied Economics of the University of Valencia, Spain. Juergen B. Donges is Professor at the Kiel University (Institute of World Economics), Kiel, West Germany. Ismael Fernandez Guerrero is Lecturer in the Department of Applied Economics, University of Valencia, Spain. Agustin Gonzalez is Lecturer in the Department of Applied Economics of the University of Valencia, Spain. A.J. Marques Mendes is Professor at the University of Coimbra, Portugal. Angel Orti Lahoz is Professor in the Department of Economics of the University of Valencia, Spain. Vicente Orts Rios is Lecturer in the Department of Applied Economics of the University of Valencia, Spain. Ernest Reig Martinez is Professor of Applied Economics of the University of Valencia, Spain. Manuel Sanchis i Marco is with the Commission of the European Community, Brussels. Klaus-Werner Schatz is Research Fellow in the Institute of World Economics, Kiel University, Kiel, West Germany. Armindo da Silva is with the Commission of the European Community, Brussels. Celestino Suarez Burguet is Lecturer in the Department of Applied Economics of the University of Valencia, Spain. Elisa M. Ferreira Taveira is Research Economist in the Commission for the Northern Region of Portugal, Porto and teaches in the Faculty of Economics of the University of Porto, Portugal. A.P. Thirlwall is Professor of Applied Economics, University of Kent, England. George N. Yannopoulos is the Chairman of the Graduate School of European and International Studies, University of Reading, England.