Is Spain a lumpy country? A dynamic analysis of the ‘lens condition’

Abstract

We implement the ‘lens condition’ of Deardoff (1994) to investigate whether lumpiness, an excessively uneven geographic distribution of production factors, is large enough to allow for regional specialization of production at different factor prices. Using data from 50 Spanish provinces over the period 1964 to 2001, we show that Spain evolved from being a lumpy economy to a state where lumpiness no longer mattered.

Acknowledgements

F. Requena and J. Castillo acknowledge support from the Generalitat Valenciana under INTECO grant (GRUPOS03/151 and GV04B-070).

Notes

¹ In 1964, 33% of workers were employed in agriculture and 8% of workers were illiterate. In 2001, the percentages were reduced to 5 and 0.5%, respectively.

² See Demiroglu and Yun (1999), Xiang (2001), Qi (2003) and Wong and Yun (2003) for alternative theoretical proofs and extensions. These extensions reveal that satisfaction of the lens condition is necessary but not sufficient for FPE in settings with more than two factors. Thus, while violation of the lens condition may be useful for ruling out FPE, a lack of violation does not indicate support for FPE.

³ Villaverde (2005) also found evidence of the importance of factor endowment allocation in the space to explain the process of regional convergence in labour productivity in Spain over the period 1985 to 2002.

⁴ Courant and Deardoff (1994) show that regional factor immobility is not necessary for lumpiness and that specialization and unequal factor prices can coexist with interregional factor mobility in the presence of nontraded goods, consumption amenities and production amenities.

⁵ Debaere and Demiroglu (2003) and Debaere (2004) used data for 1 year to implement the ‘lens condition’.

⁶ The properties of this measure are discussed in Debaere and Demiroglu (2003, pp. 117–118).

⁷ The stock of capital is only available until 1998. Low-educated workers are those with completed primary studies or less. High-educated workers are those with completed secondary and tertiary studies.

⁸ Using another data set for 21 sectors and 17 regions (NUTS II) for the year 1998, the lens condition is overwhelming satisfied, confirming that lumpiness is not a phenomenon in Spain in the new century. These results are available on request.