Thick borders in Franco’s Spain: the costs of a closed economy

Series: Working Papers. 2209.

Author: Rodolfo G. Campos, Iliana Reggio and Jacopo Timini.

Topics: Exchange rates | International trade | Competitiveness | International Economy | Quantitative methods.

Published in: The Economic History Review, Volume 76, Issue 4, November 2023, pp. 1259-1280

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Thick borders in Franco’s Spain: the costs of a closed economy (1 MB)

Abstract

Between the 1940s and 1970s, Spain used a variety of economic policies that hindered international trade. Because the mix of tariffs, quotas, administrative barriers, and exchange rate regimes varied greatly over time, the quantification of the effect of the various trade policies on international trade in this period is particularly elusive. In this paper, we use historical bilateral trade flows and a structural gravity model to quantify the evolution of Spain’s border thickness, a summary measure of its barriers to international trade. We find that Spain’s borders in the period 1948-1975 were thicker than those of any other country in Western Europe, even after the liberalization of trade that started in 1959. These comparatively higher impediments to international trade implied substantial negative effects on consumer welfare. We estimate that accumulated welfare costs over the period 1948-1975 exceed 20% of a year’s total consumption.