What does GDP really mean? Is it a measure of material welfare or simply a measure of output? A recent wave of critical publications rejects any pretence for GDP to capture anything other than production, heightening a scrutiny that goes back to the inception of national accounts in the mid-twentieth century.

However, those who claim that GDP is a flawed measure of economic welfare accept that GDP per head is highly correlated with non-monetary dimensions of well-being.

Can we rely on historical estimates of GDP to assess output and material welfare in the long run?

A new dataset

A new set of historical national accounts, with GDP estimates from the demand and supply side, is presented for Spain as the basis to investigate its modern economic growth.

Historical output and expenditure series are reconstructed for the century prior to the introduction of modern national accounts. Then, available national accounts are spliced to derive new continuous series for 1958-2015, providing yearly series for GDP and its components over 1850-2015. Finally, on the basis of new population and labour force estimates, GDP per head and labour productivity are derived .

An Open Access online version of the book appears crucial for a publication of this nature, its diffusion many times larger than that a conventional publication. The dataset can be also accessed here.

What do the data show?

Aggregate economic activity multiplied 50 times between 1850 and 2015 and main phases may be established in which the growth trend varied significantly.

How did this growth affect Spaniards’ living conditions? Since population trebled, real GDP per head experienced nearly a 16-fold increase. Such an improvement took place at an uneven pace. Per capita GDP doubled over 1850-1950. During the next quarter of a century, the Golden Age, its pace accelerated more than 7-fold, so by 1974 per capita income was 3.6 times higher than in 1950. Although economic progress slowed down from 1975 onwards, and the rate of per capita GDP growth shrank to one-half that of the Golden Age, the level of per capita GDP more than doubled between 1974 and 2007. The Great Recession (2008-13) shrank per capita income by 11%, but, by 2015, its level was still 83% higher than at the time of Spain’s EU accession (1985).

What steered such a remarkable rise in product per capita? GDP per capita depends on the amount of work per person and how productive this effort is. GDP per capita and labour productivity evolved alongside over 1850-2015, even though as the amount of hours worked per person shrank, labour productivity grew at a faster pace –it increased 23-fold against 16-fold for GDP per capita-. Thus, long-term gains in output per capita are entirely attributable to productivity gains.

A closer look at the last four decades reveals, however, significant discrepancies, with phases of acceleration in labour productivity correspond to those of GDP per person slowdown, and vice versa. It can, then, be concluded that since the mid-1970s the Spanish economy has been unable to combine employment creation and productivity growth, with the implication that sectors that expanded and created jobs (mostly construction and services) were those less successful in attracting investment and technological innovation.

Falling behind, catching up… and falling back again?

Spanish long-term growth has been similar to that of western nations, though Spain’s level of GDP per head appears systematically lower.

The pace of growth before 1950 was comparatively slow in Spain. Sluggish performance over 1883-1913 and failing to take advantage of its World War I neutrality to catch up, partly account for it. Furthermore, the progress achieved in the 1920s was outweighed by Spain’s short-lived recovery from the Depression, brought to a halt by Civil War (1936-39), and by a longer and weaker post-war reconstruction than in the warring western European countries after 1945. Thus, Spain fell behind between 1850 and 1950.

The situation reverted from 1950 to 2007. The Golden Age, especially since 1960, stands out as years of outstanding performance and catching up to the advanced nations. Steady, although slower growth after the transition to democracy years (1975-84), allowed Spain to keep catching up until 2007. The Great Recession reversed the trend, although it is too soon to determine whether it has opened a new phase of falling behind.

On the whole, Spain’s relative position to western countries has evolved along a wide-U shape, deteriorating to 1950 (except for the 1870s and 1920s) and recovering thereafter (but for the episodes of the transition to democracy and the Great Recession). Thus, at the beginning of the twentieth-first century Spanish real GDP per head represented a proportion of US and Germany’s income similar to that of mid-nineteenth century, and to that of the 1870s with regard to France and Italy, although had significantly improved with respect to the UK.

But does per capita GDP capture welfare?

A major objection to GDP per head is that it takes no account of income distribution. It can be shown, however, that when adjusted for inequality, the results are similar to those for per capita GDP.

Another objection to GDP per head is that it fails to incorporate non-income dimensions of well-being. Similar long-term trends are observed, however, in per capita GDP and Human Development (a measure of multi-dimensional well-being.

All in all, it can be concluded that GDP per head captures long run trends in welfare in Spain, but fails to do it in the short and medium term.

Leandro Prados de la Escosura is Professor of Economic History at Carlos III University in Madrid, Spain. His Open Access book Spanish Economic Growth, 1850–2015 was published in 2017.