Reversal of economic fortunes: institutions and the changing ascendancy of Barcelona and Madrid as economic hubs

This paper looks at the divergent economic trajectories of Barcelona and Madrid since Spain's transition to democracy. It highlights how Barcelona, the city that was better positioned four decades ago to emerge as the main Spanish economic hub, has lost out to Madrid. We argue that the contrasting trajectories of the two cities have less to do with the pull of Madrid as the capital of Spain, with the development of new infrastructure in the country, or with agglomeration economies, and more with institutional factors. A growing societal divide in Barcelona along economic, social, and identity lines has led to a greater breakdown of trust and to the development of strong groups with limited capacity to bridge with one another than in Madrid. This has entailed the emergence of negative externalities that have limited the economic potential for growth in Barcelona and facilitated the rise of Madrid as the main economic hub within Spain

Macroeconomic effects of Catalan fiscal deficit with the Spanish state (2002-2010)

According to Eurostat Regional data for the period 1996-1999 Catalan convergence with the EU's most dynamic regions has been blocked. In this paper, with the aim to analyse how Catalonia can converge with the EU in the forthcoming years, some simulations of Catalan GDP growth in the 2010 horizon have been estimated, considering different reduction scenarios of Catalan fiscal deficit with the Spanish state (between 7-9% of Catalan yearly GDP). Looking at the results obtained, the current Catalan stagnation will persist for the next few years if the above-mentioned fiscal deficit does not change. Thus, Catalonia will only converge with most dynamic EU regions if there is a significant reduction of Catalan fiscal deficit with the Spanish state.