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1
Introduction
The economic policy varied substantially over the years that General Franco remained in power (1939-1975). During its early years, the new regime introduced a set of anti-market policies that altered the previous behaviour of the Spanish economy dramatically. These measures resulted in high inflation rates, the development of «black markets» and a contraction in international trade. In a subsequent phase, during the 1950s, the most extreme interventionist policies were relaxed, while the Spanish economy benefited from a (military and technological) cooperation agreement with the U.S. government. A critical economic situation by mid-1959, in particular a shortage of foreign reserves, induced more drastic economic reforms. The authorities presented this set of reforms as a package, the Liberalisation and Stabilisation Plan (hereafter PSL). Simultaneously, Spain joined major international organisations increasingly committing the government to the free market discipline. As a consequence, inflation decreased, «black markets» disappeared, foreign investment increased and international trade flourished1.
Our main goal is to test the impact of Franco's economic policies on Spanish economic growth quantitatively. In particular, we will revisit the widespread claim that the new policies associated with the 1959 PSL had a dramatic impact on Spain's growth performance and explore the effects on growth of the previous tentative steps to soften regulation and intervention. A market-oriented reform is a policy measure that favours the competitive participation of private agents in economic activity, and thus assessing the impact of policy reforms is not an easy task and there are many ways to go about it (see Loayza and Soto 2003). Our choice has been to construct an index of macroeconomic distortions (hereafter IMD) and analyse its impact on growth in several counterfactual scenarios.
In a nutshell, our results confirm the important role played by the PSL and the subsequent reforms in promoting sustained economic growth while stressing the permissive role played by the gradual and moderate reduction of macroeconomic distortions during the 1950s. According to our calculations, without these successive economic policy reforms, GDP would have been significantly lower at the time of Franco's death in 1975.
The rest of the paper is organised as follows. Section 2 reviews Franco's regime growth record and its economic policy. In section 3, we introduce the...