The gold standard was a monetary system based on fixed exchange rates, whereby domestic prices were pegged to the international price level and a high level of control had to be exercised over the money supply. This meant that fiscal discipline also had to be maintained for a country to remain on the gold standard. In times of crisis, countries had to leave the gold standard or use internal devaluation. This article seeks to gain an understanding of the role of the different economic policies in Italy and Spain at the end of the nineteenth century and the beginning of the twentieth century and how they were used in response to reductions in GDP. This article considers fiscal policy, monetary policy, and exchange rate policy estimating a VAR model. Results show how the exchange rate depreciation had positive effects on the Spanish economy during 1870–1913, while it only helped the Italian economy in specific periods to overcome crises. The expansive monetary policy was necessary for both countries to maintain public expenditure, which in turn allowed a smoothing of the GDP fluctuations. None of these policy options would have been available under the gold standard.
“When the fluctuations of the cycle are intense and unexpected, the reaction to maintain equilibrium must be rapid” (Keynes, 1931/1988).
The gold standard was a monetary system based on fixed exchange rates, whereby domestic prices were pegged to the international price level and a high level of control had to be exercised over the money supply. Both economists and economic historians have put their attention on the gold standard. The recent euro crisis and the debate about macroeconomic policies have aroused further interest in the study (Stiglitz, 2016, p. 12). In the study by Bordo and James (2014), both the gold standard and the euro are systems based on fixed exchange rates and monetary and fiscal orthodoxy; both limit government power by preventing the manipulation of the exchange rate and expansionary fiscal and monetary policies. These golden fetters in times of the gold standard and today’s paper fetters affect the way we can react to economic crises. Because of this similarity, the study of the gold standard is of particular relevance today.
Much of the historiography has indicated that the gold standard brought benefits such as lower interest rates, lower fiscal deficits, lower inflation, better access to the capital market, trade channels, and lower transaction costs (Bordo & Rockoff, 1996, pp. 389–396; López-Córdova & Meissner, 2003, p. 344; Meissner, 2005). Being on the gold standard increased a country’s financial prestige and promoted trust (Keynes, 1931/1988, p. 176). Unfortunately, the positive effects of stability and growth were generally limited to advanced economies: there was a marked contrast between the experience of core and peripheral countries (Bordo & Flandreau, 2003, p. 419; Eichengreen & Flandreau, 1997; Flandreau & Komlos, 2002).2 The economies in the southern periphery of Europe failed to observe the rules of the classical gold standard (Eichengreen, 2015, pp. 12, 13, 93). Italy suspended convertibility in 1894, Portugal in 1891, and Spain was never able to adopt the system.
The peripheral countries tried to follow the rules of the game, with varying degrees of success (Cesarano, Cifarelli, & Toniolo, 2012, p. 254). Bordo and Rockoff (1996, p. 394) state that adhering to the requirements of the gold standard was very difficult for the countries of southern Europe; their experiences were characterised by higher growth rates of the money supply, fiscal deficit, and higher inflation than other countries. Spain and Portugal let their currencies float, while others such as Italy, Greece, and Austro-Hungary shadowed gold (Flandreau & Zumer, 2004). At the beginning of the twentieth century, these countries fared better. Discoveries of gold and sustained growth helped to narrow the gap between the core and the periphery, and the differential interest rate was reduced (Obstfeld & Taylor, 2003).
The weak point of the classical gold standard, in which the exchange rates between a country and the outside world were fixed and the level of domestic prices had to adjust to them, was its excessive slowness and lack of sensitivity. “The classical gold standard is not appropriate to overcome [such difficulties] in practice, simply because it cannot produce the readjustment of domestic prices quickly enough” (Keynes, 1931). We could say that Spain and Italy, which shared the same problems in the balance of payments, with constant public deficits and experiencing at least two relevant economic crises, required a system that was much more flexible and adaptable to economic changes.
The adoption of a system of fixed exchange rates and free movement of capital eliminates monetary autonomy (Obstfeld, Shambaugh, & Taylor, 2005). Obstfeld et al. (2005, p. 424) define the gold standard as a period of high globalisation, basically with fixed exchange rates, capital mobility, and, therefore, limited monetary independence. Economies on the gold standard could not use monetary policy to overcome cycle fluctuations and could only resort to domestic fiscal policy or structural adjustments. In contrast, floating exchange rates allowed the preservation of national autonomy and the country’s independence (Johnson, 1969, p. 12). The vulnerability of the peripheral countries was largely due to their inability to implement orthodox, consistent fiscal, and monetary policy, and to create a healthy banking system (Bordo & Flandreau, 2003).
Meanwhile, Eichengreen and Temin (2010) stress that severe crises need the stimulus of expansionary monetary and fiscal policy. However, the gold standard did not allow the use of expansionary monetary policy. Therefore, in the event of a crisis, the only response was internal devaluation. Countries such as Spain and Italy suffered crises during the gold standard era and needed to carry out expansionary monetary and/or fiscal policy to overcome them. Therefore, in some way, these two countries were unable to remain in the gold standard. Spain never adopted the gold standard even when it followed the rules of the game for some years, and Italy abandoned the gold standard in 1894. These two countries also suffered greatly during the Great Recession under the European Monetary Union rules.
Crises are a recurrent feature of the development of capitalism, so their study is important. This article focuses on the role played by different macroeconomic policies in overcoming business cycles because imposing strict monetary discipline to maintain the gold parity of their currencies could turn a normal slowdown in aggregate economic activity into a crisis of unprecedented dimensions. The study analyses the adjustment mechanisms that contributed to overcoming crises during the second half of the nineteenth century and the beginning of the twentieth century. That is, the effect of the instruments used to overcome business cycle fluctuations, following studies such as Bahmani-Oskooee and Kandil (2010), Kamin and Rogers (2000), or Shibamoto and Shizume (2014).
Over time, Spain and Italy often used the depreciation of their currencies and expansionary policies until they entered the euro system. The history of Spain shows how the exchange rate was used recurrently to overcome the economic problems of the moment (Catalan & Sánchez, 2013; Sardà, 1987; Sudrià & Tirado, 2001). According to Tortella (1994, p. 178), monetary policy, though not appreciated by contemporaries, was the most successful instrument of the gold standard period. Initially, Italy was in a bimetallic system with convertibility (fixed exchange rate system); it later adopted a fiduciary system, and finally, it shadowed the gold standard. Hence, Cesarano et al. (2012) regard Italy as an interesting case for the study of monetary arrangements in a semiperipheral, developing, open economy during the first globalisation. According to Tattara (2000), the history of Italy is clearly different from that of the core countries, and these differences must not be ignored. However, when considering the stability of the exchange rate, one might be tempted to affirm that the Italian experience was like that of the countries that formally adhered to gold (Fratianni & Spinelli, 1997).
This article aims to compare how Spain and Italy reacted to the fluctuations in the economic cycle that they experienced during the period of the classical gold standard. These are two peripheral countries that failed, in the case of Spain, to adopt the monetary system of fixed exchange rates and, in the case of Italy, to remain within the gold standard. The three main policies considered in this article are fiscal policy through government expenditure, monetary policy through M1, and exchange rate policy through the real exchange rate. To conduct the analysis, a VAR (vector autoregressive) model is constructed. VAR models have been used elsewhere to analyse monetary, fiscal, and exchange rate policies, but not in relation to the Mediterranean periphery. Results show how the exchange rate depreciation had positive effects on the Spanish economy during 1870–1913, while it only helped the Italian economy in specific periods to overcome crises. The expansive monetary policy was necessary for both countries to maintain public expenditure, which in turn allowed a smoothing of the GDP fluctuations. None of these policy options would have been available under the gold standard.
This article is organised as follows. Following the introduction, Section 2 describes the evolution of the Spanish and Italian economies during the period. The data are explained in Section 3. Section 4 explores the theoretical framework, Section 5 presents the methodology, and Section 6 presents the results. The discussion in Section 5 focuses on the historical evidence and previous literature. This article ends with some conclusions.
2 The Spanish and Italian Economies During the Classical Gold Standard
2.1 Spanish Economy, 1870–1913
The gold standard’s finest hour began in around 1870, when it was the predominant monetary system in Europe. Spain was the only Western country that never joined this fixed exchange rate monetary system. The country had a de jure bimetallic system throughout the period, even though its currency convertibility is questioned (Bru & Ródenas, 2006). In 1874, the monopoly on issuing banknotes was granted to the Bank of Spain due to government’s fiscal problems. From 1874 to 1881, the exchange rate was kept more or less stable (Figure 4), as Spain sought to control the public debt and not issuing too many banknotes. The collapse of the Banque de Lyon et de la Loire in 1882 exposed Spanish banks to large scale cash withdrawals and in some cases outright failures, causing a drainage of gold reserves (Bordo & Schwartz, 1999, p. 32; Martín Aceña, 1993, pp. 135, 137, 189; Sardà, 1987, p. 179; Tortella, 1994, pp. 139, 177, 480–481). Spain went on to have a de facto fiduciary system in 1883, since the real value of silver was lower than its face value. The effect of Gresham’s law left the Spanish economy without any gold and, indeed, between 1891 and 1892, gold disappeared entirely from circulation (Sardà, 1987, p. 183).
Spain’s monetary and fiscal policies were expansionary, and the exchange rate depreciated. According to Sardà (1987, pp. 181, 183), the increase in fiduciary circulation was linked to the pressure exerted by the Treasury to obtain resources. Increases in the money supply were made through extensions of the emission limit, the first dating to 1891 (Sardà, 1987, p. 180). The exchange rate started to fluctuate (mainly downwards) in around 1882 due to the financial crisis, and in 1891, it fell notably. Overall, the exchange rate depreciated by 2.15% between 1882 and 1890, and the money supply increased by 18.36% (Figures 3 and 4). In 1891, the peseta depreciated, coinciding with the application of the Cánovas protectionist tariff, which improved the economic situation (Carreras, Prados de la Escosura, & Rosés, 2005, p. 1341). The floating exchange rate seems to have exerted its role as an automatic stabilizer of the economy and allowed internal and external equilibrium to be maintained, despite the shocks that might have existed in aggregate demand.
In 1893, although the earlier crisis had not fully abated, a new crisis broke out (Table 2). The preference for liquidity restricted credit. The Bank of Spain increased the cost of credit by raising the discount rate. This end-of-the-century crisis broadly affected the whole economy (Sardà, 1987, p. 223). Moreover, the agricultural depression compounded the financial slump and made the crisis the longest of the period. The depression was exacerbated by the closure of the French market and the phylloxera plague.
Fiscal deficits recurred between 1871 and 1899. As there was no trade surplus, insufficient amounts of gold entered to compensate the metal outflows for the payment of the debt. The situation was worsened by the war in Cuba, which, from 1895 onwards, pushed the debt up from 800 million to 3 billion pesetas. This debt was monetised, thus increasing the money supply in circulation. The Cuban insurrection caused the Ministry of Overseas Territories to resort to issuing notes (Sardà 1987, p. 90). Subsequently, in 1898, the issue limit was again increased, this time to 2.5 billion pesetas. The amount of money in circulation increased by 47.67%, government expenditure rose by 12.79%, and between 1891 and 1898, the depreciation of the peseta reached 34.53%, its highest point in the period (Figures 3 and 4). However, the collapse of the Spanish economy after the conflict with Cuba was followed by a recovery in GDP.
Subsequently, to try to improve the budget and reduce the debt, the issue limit was reduced. The Budget Act of 1899–1900 helped to restore the situation of the Treasury until 1909. These measures achieved a budget surplus, and for a few years, the State did not need to issue banknotes to finance itself. So, during these years of currency appreciation and fiscal budget stability, Spain can be regarded as following the gold standard, without being a member. However, Spain never “shadowed” the gold standard in the same way and with the same commitment as Italy. The effects of these new policies can be considered as being positive, even though the economy showed symptoms of depression (Sardà, 1987, p. 207, Table 1). Between 1903 and 1905, Spain slowed down its economic growth (Table 2), when pc GDP fell as a consequence of swingeing budget adjustments.
2.2 Italian Economy, 1870–1913
Italy is an interesting case of a small open country with the exchange rate decoupled from gold for much of the period. Italy ran small deficits for much of the period. However, the most significant deficits occurred at specific moments and were limited in time. The largest deficits in Italy occurred between 1861–1870 and 1886–1891 (Tattara & Volpe, 1997). During much of the 1880s and 1890s, deficits were financed with the creation of public debt. In 1897, the public debt was 120 of the GDP (Tattara & Volpe, 1997). Between 1897 and 1904, it maintained a fiscal surplus. The main difference with Spain is that Spain maintained much larger fiscal deficits despite the fact that, like Italy, it reached a surplus in the early years of the twentieth century. The printing press resource was a government’s way of financing fiscal deficits. The government moved quickly from a commodity standard to a paper standard when necessary: in 1866 with the Austro-Hungarian war and in the 1890s with the domestic credit crisis. Despite this, it did not digress from the behaviour of other European countries. When the problems of the 1890s were resolved, Italy acted in the same way as other countries that returned to the fixed exchange rate system, but remained outside. Therefore, its macroeconomic variables followed the rest of the European countries, maintaining fiscal and exchange rate stability. According to Tattara (2003), the public debt made it difficult for Italy to adopt gold, it mismanaged foreign debt, and it gained fiscal flexibility, but lost the benefits of the gold standard.
Italy maintained a very stable exchange rate throughout the period and kept the price level stable, which is why it is considered to have “shadowed” the gold standard despite having fiscal deficits. The exchange rate of the lira was never separated from the other currencies of the gold standard and the price level remained stable. The exchange rate depreciated in a limited way and always fluctuated within a band of ±5% (Figure 4). In reality, the gold standard worked through capital movements in an integrated financial market. Furthermore, a stable exchange rate was compatible with the state playing its role of spending on infrastructure. In Italy, the increase in the money supply by the Treasury did not create great pressure on prices. The excess supply of money was disposed of through purchases of foreign assets. Although the fiscal deficits were large, they were very short lived, so they had little impact on the interest rate and the exchange rate, since the long-term confidence of foreign investors was not altered. The case of Spain was different as the deficits were larger and sustained over time.
From 1861 to 1866, Italy had a bimetallic system (fixed exchange rate system). It joined the Latin Monetary Union in 1865 because of the importance of its trade with France. As with Spain, its monetary system was a copy of the French. After Italian unification, public spending skyrocketed and the state finances had to face new obligations. Income barely covered 50% of public spending (Tattara & Volpe, 1997). The deficits that were created were financed by increasing the amount of debt. In 1866, the corso forzoso was declared. With the suspension of its convertibility, the lira no longer had to maintain a stable exchange rate.
Debt increased considerably until 1870, reaching 80% of GDP. Taxes were raised in 1870 and again in 1887. From 1872 to 1874, the currency depreciated (Figure 4). In 1869, agreements were signed with the national bank to increase circulation and to finance the Treasury. In the 1870s, the government did not renew all the debt and monetised part of the debt because the cost was very high. As a result, the amount of money in circulation increased. Banknotes in circulation increased steadily until 1874 although metal reserves fell drastically and deficits were reduced. Hence, the money supply did not increase after the 1874–1888 period. In principle, banks could not print unlimited currency and had to adhere to rules regarding their gold and silver reserves. Tattara (2000, p. 18) identifies the low level of regulation of the money supply as an important problem. Thus, the problems of budget deficit, the plurality of issuing banks, and the lack of regulation of the money supply also led to small fluctuations in the exchange rate (Tattara, 2000, p. 18).
Italy experienced some reductions in pc GDP during the 1870s and 1880s, as presented in Table 2. Despite this, Italy was able to control public consumption and exchange rate fluctuations and only use them when it was necessary. In 1880, a bill was introduced to allow the government to borrow abroad and obtain gold (Tattara, 2000, p. 23). Government expenditure increased; however, money in circulation fell and the lira appreciated to reach convertibility. The deficit remained limited between 1874 and 1885. Scholars consider that the authorities managed and supervised the exchange rate by controlling both the issuance of banknotes and the reserve accumulation process. Tattara and Volpe (1997) point out that capital flows allowed stability to be maintained in the Italian economy and helped to control the impact that the money supply had on the exchange rate.
Italy received a large loan in 1883 from Great Britain in gold with which to return to the gold standard (De Cecco, 1991). After the appreciation of the lira, parity was suddenly restored (and gold convertibility was possible). A lot of foreign capital entered the country in anticipation of the appreciation of the lira. After the declaration of convertibility in 1883, the lira was “de iure” convertible from 1884 until 1894. However, according to Tattara (2000, p. 24) and Tattara and Volpe (1997), convertibility never became effective. Banks stopped converting to gold within a few months (Di Nardi, 1954). Silver depreciated, and as banks could convert to silver or gold, they converted the notes into silver and kept the gold, thus discouraging people from requesting conversion.
The public deficit increased and the government did not supervise the issuing of banknotes. With the support of the government, notes were issued above the legal limit to finance construction and other activities. The money supply increased by 10.73% between 1884 and 1889, and between 1888 and 1896, the lira depreciated by 6.19%. In 1892, the illegal dealings of the Banca Romana became known, finally causing a banking collapse. In 1893, the Banca Nazionale merged with other banks, and a year later, “corso forzoso” was declared once again. This and the inconsistency of country’s economic policies led to the biggest banking crisis yet, which forced the country off the gold standard in 1893.
Before the crisis, credit was abused and beliefs about the country’s economic performance were overly optimistic. Public works, the railways, and other projects financed by the government were implemented, and there was a high level of speculation thanks to the availability of cheap capital. On the other hand, the growing needs for defence spending forced the government to accept expenses higher than its income levels (De Cecco, 1990, p. 782). Moreover, the Bank Act of 1893 was unclear with respect to the convertibility of the notes; Fratianni and Spinelli (1997, pp. 89–90) consider that monetary policy was unduly accommodating and bank regulation was lax.
The second period of inconvertibility (flexible exchange rate regime) was a period of economic growth (Table 1). After the international crisis of 1890 (Table 2), reserves increased again and brought the exchange rate back to parity. Surpluses were achieved, growth accelerated, and the surplus in the balance of payments led to an appreciation of the lira (Fanno, 1908, pp. 107–108; Supino, 1921, pp. 39–40). Investment rose, and Italy became a net exporter of capital. Italian policy was consistent with the rules of the game even though the country was not on the gold standard: in fact, in this period, it is considered that Italy shadowed the gold standard. The country’s fiscal and monetary policies were expansionary. Money supply increased by 38.19% in 1900–1907 and by 28.2% in 1908–1913, and government expenditure also increased by 21.6% between 1900 and 1913. Nonetheless, the exchange rate remained stable because of the abundance of capital in Europe, the increase in tourism expenditure, and remittances. In fact, the Italian currency was stable from 1902 until the First World War, even during the 1907 financial crisis.
2.3 A Brief Comparison Between Spain and Italy, 1870–1913
Table 1 presents a summary of the years in which Spain and Italy had fixed exchange rate systems or fiduciary systems or followed the rules of the fixed exchange rate system without adopting it and what happened during those years. All explanations are presented in this article.
Table 2 presents the years in which Spain and Italy suffered decreases on their pc GDP. The years are shown in white when they recover the level of pc GDP they had before the crisis and in orange when pc GDP decreases from the previous level. We can see the previously described crises.
Figure 1 shows the economic growth in Spain and Italy. It is observed that the economic cycle was smoother for Italy than for Spain. The Italian economy experienced much more stability than the Spanish one. The Spanish economy experiences greater falls in the economic growth, although, also, higher rates of positive growth than Italy.
Figure 2 shows the evolution of public spending as a percentage of GDP in Spain and Italy. Public spending in Spain and Italy was similar (Figure 2). However, in Spain, revenues were not able to cover public spending, and fiscal deficits were huge compared to Italy. In a context of fiscal dominance for Spain (Escario et al., 2011, pp. 271–272; Sabaté et al., 2006, pp. 310, 321, 328), monetary policy increased to accommodate to fiscal needs, especially in the late 1890s. It is something that did not happen in Italy was that money supply did not show big increases. Italian monetary policy was less expansionary (Figure 3).
Figure 4 shows the evolution of the exchange rate in Spain and Italy. It is observed that the nominal exchange rate was more stable in Italy than in Spain. This coincides with the evolution of the rest of the variables that we have seen. In Spain, the nominal exchange rate is more unstable and has a tendency to depreciate since the 1880s although this trend is accentuated in the 1890s. The real exchange rate in Italy tended to appreciate (see trend line, Figure 4). Prices in Italy were quite stable throughout the period with a slight deflationary trend until 1895. Once off the gold standard, prices in Italy remain stable, although with a slight trend towards inflation. The Italian–UK relative prices showed a downward trend. In Spain, the real exchange rate tended to depreciate (see trend line, Figure 4). Prices in Spain were generally less stable than in Italy and the UK and higher than in the UK for much of the period.
This section describes the data used. Because quarterly data are not available for all the variables, the annual data for 1871–1913 are used as the sample. The end of the Franco-Prussian war is considered as the beginning of the hegemony of the gold standard. When the Latin Monetary Union countries decided to adopt the gold standard following the two main economies of Europe (Germany and Great Britain), it became the main monetary system in Europe. Therefore, the analysis starts in 1871. All the variables have been converted into logarithms.
The data are drawn from secondary sources. The is real pc GDP measured using GDP from Prados de la Escosura (2003) and population from Nicolau (2005) deflated by the GDP deflator (Prados de la Escosura, 2003) for Spain and from Baffigi (2013) and Istat (1957) for Italy; g t is the real public consumption obtained by Prados de la Escosura (2003) deflated by the GDP deflator (Prados de la Escosura, 2003) for Spain and from Baffigi (2013), respectively, for Italy; m t is the money supply measured by Martín Aceña (2017) for Spain and by Barbiellini, De Bonis, Rocchelli, Salvio, and Stacchini (2016) for Italy; and e t is the bilateral real exchange rate against the pound from Martín Aceña and Pons (2005) and Martinez-Ruiz and Nogues-Marco (2014) and GDP deflator and Prados de la Escosura (2003) for Spain, Ciocca and Ulizzi (1990) for Italy and GDP deflator from Baffigi (2013), and Mitchell (2013) for United Kingdom GDP deflator.
4 Theoretical Framework
where Ln is the logarithm of the variables, and y t is real output and varies with the three different kinds of policies. Fiscal policy, Ln g t , is measured by real government expenditure. The logarithm of money supply is Ln m t , and it approximates the monetary policy, and the real bilateral exchange rate is denoted by Ln e t . An increase in the exchange rate means a depreciation. Therefore, if the exchange rate coefficient has a positive sign, depreciations have a positive impact on GDP. Otherwise, if the effect is contractionary, the sign will be negative.
Monetary policy is expected to positively affect the real GDP. The increase in output due to an increase in government expenditure is shown in the study by Blanchard and Perotti (2002). Moreover, a crowding-out effect can negatively affect the economy. Ricardian equivalence theory (Barro, 1974) suggests that, in the long run, deficit-financed government spending may have a neutral effect on output. A change in the exchange rate can have different effects. On the one hand, a depreciation improves national production due to the stimulation of exports. Domestic goods become more competitive, which improves the country’s competitiveness. In this way, the current account balance tends to increase (Dornbusch, Krugman, & Cooper, 1976, p. 551) and demand increases. In the study by Krugman and Obstfeld (2006), the main cause of the internal instability experienced until 1914 with the classical gold standard was the subordination of economic policy to external objectives, although they point out differences according to the structural characteristics of the country. Appreciation of the exchange rate will produce a crisis in export companies and a fall in wages. The cost of living will decrease slightly and will serve as an argument for the reduction of wages. Credit restrictions will also need to be carried out. Unemployment will be added to lower wages. In contrast, a devaluation increases import prices, increases the cost of production, and reduces the aggregate supply. When there is a greater propensity to consume among workers than among producers, consumption can fall (Alexander, 1952). Edwards (1986) shows that the effect of a depreciation is negative in the first period, positive in the second period, and neutral in the long term.
This section describes the econometric tools used to estimate the effects of monetary, fiscal, and exchange rate policy on real GDP. Therefore, considering that the main goal of this article is to understand the relationship between different macroeconomic policies and GDP, a vector autoregressive model is estimated to calculate impulse responses and historical decomposition. The methodology has been used, with similar objectives, by Cha (2003), Gordon and Krenn (2010), Mattesini and Quintieri (1997), and Shibamoto and Shizume (2014) to capture the magnitudes of the effects of macroeconomic policies in Japan and Italy. For example, Shibamoto and Shizume (2014) study (estimating a VAR) how three macroeconomic policies (monetary, fiscal stimulus, and exchange rate adjustment) and expected inflation affected Japanese GDP during the Great Depression. All of these authors analyse the impact of macroeconomic policies on GDP. Furthermore, Bahmani-Oskooee and Kandil (2007) study the impact of money supply, public spending, and the real exchange rate on production in the case of Iran. Unlike the other studies, they use a theoretical model developed by Kandil and Mirzaie (2002). Their study is an innovative approach due to the previous lack of any estimation of the effects of fiscal, monetary, and exchange rate policy shocks on these economies. VAR is estimated with variables in levels. Moreover, Jordà (2005) compares impulse response functions with local projections developed as an alternative for smaller samples.
To analyse the dynamic relationship between macroeconomic variables, the following SVAR model is constructed using the variables of output (y t ), public spending (g t ), real exchange rate (e t ), and money stock (m t ):
where , d t is a vector of linear time trend coefficients, b 0 is the vector of the constant, is a pth order lag that forms a matrix such that the diagonal elements of are equivalent to 1, and is the five-by-one vector of serially uncorrelated structural disturbances with a mean zero and a covariance matrix . Following the order proposed by Shibamoto and Shizume (2014), the macroeconomic variables are put first (real GDP), and then, the policy tool variables are added (government expenditure, nominal effective exchange rate, and money stock). The structural model is as follows:
where a 0 is the vector of the constant, d t is a vector of linear time trend coefficients, is a pth order lag of matrix , and is the five-by-one vector of serially uncorrelated structural disturbances with a mean zero and a covariance matrix .
6 Empirical Results
This section describes the results obtained from the VAR estimation comparing Spain and Italy.
6.1 Effects of Structural Shocks
In the study of business cycles, we should pay attention to the short-term effects because the long-run data are not the most important source of information. Variables with no long-term effects on output may have great temporary impacts. Generalised impulse response functions are used to analyse the dynamic characteristics of our model. I have used these functions because they are invariant to the ordering of the variables in the VAR (Lutkepohl, 1991). Pesaran and Shin (1998) show the approach for a cointegrated VAR model and how the maximum likelihood structure of the generalised impulse response is T-consistent and asymptotically normally distributed. A shock to the ith variable not only directly affects the ith variable but also all the other endogenous variables by means of the VAR’s dynamic structure (lag). The effect of one standard deviation shock on the current and future values of the endogenous variables is shown by the impulse response function (in green). The red dotted bands show a standard deviation of 1.96 with a confidence interval of 90%. The results of local projection functions (Jordà, 2005) are also presented (in blue). The findings show that the results of the local projections are very similar to the ones obtained by VAR generalised impulse response functions.
Figure 3 presents the impulse response functions for each variable following Pesaran and Shin (1998) in green and the local projections following Jordà (2005) in blue. The first row shows the responses of GDP to shocks in each variable, while the first column shows how shocks in output affect each variable. Conditional error bands are used instead of marginal error bands to help eliminate variability caused by serial correlation. Conditional error bands better show the importance of individual responses. The figures show the resulting p-values of two null hypotheses: (i) Joint indicates the null hypothesis that all the response coefficients are jointly zero and (ii) cumulative refers to the null hypothesis that the accumulated impulse response after six periods is zero.
Both the local projection and the impulse response (column 4, Figure 5) show that in Spain, an increase in the real exchange rate (depreciation) generated an increase in the gross domestic product. The opposite was the case for Italy (at least the first years), as shown in column 4 of Figure 6. We can observe at the top of Figure 4 that GDP had a significant negative response to a real exchange rate shock. Thus, real exchange rate shocks influenced the real economy in a different way in Spain and Italy. Looking at Figures 5 and 6 (column 3), an increase in the money supply affected pc GDP positively in both Spain and Italy. The findings also show that an increase in government expenditure (Figures 5 and 4, column 2) had a positive impact on pc GDP in Spain but a negative impact in Italy.
The fourth column presents the responses to shocks in the real exchange rate. In the top chart, GDP immediately increased after a shock in the real exchange rate (depreciation) in Spain. Referring to the responses to innovation in the real exchange rate, we can see that a depreciation in the exchange rate caused an increase in public consumption, an endogenous response in both Spain and Italy. However, we can observe an upward trend in the money supply after depreciation in Spain but not in Italy, where the response of money supply to a real exchange rate depreciation was negative.
The third column represents the impulse response functions to a monetary shock (an increase in the amount of money). At the top of Figure 3, we can observe that a monetary shock also raises the real output for both countries: thus, monetary policy had an impact on the real economy. At the bottom, we can also see that a monetary shock was followed by the depreciation of the domestic currency in Spain but not in the same way as in Italy. In Italy, first, the exchange rate appreciated, but from the first year after a monetary shock, it tended to depreciate. It can be said that the real exchange rate was a monetary policy transmission mechanism for Spain. In Spain, an increase in the money supply caused not only depreciation of the peseta but also an increase in government expenditure. However, in Italy, an increase in the money supply generated a decrease in public expenditure.
As we can observe in the second column, shocks in fiscal policy had a positive impact on the real economy. A shock in government expenditure was followed by an increase in GDP, and an increase in government expenditure generated an increase in the money supply for Spain. This shows how monetary policy responds to an increase in the fiscal policy, in accordance with previous analyses of fiscal dominance (Escario et al., 2011, pp. 271–272; Sabaté et al., 2006, pp. 310, 321, 328). However, in Italy, an increase in public consumption generated a negative response of pc GDP and the money supply. Finally, an increase in government expenditure generated a positive response of the exchange rate in both countries. However, the response in Spain was not significant for either local projection or impulse response results.
6.2 Historical Decomposition of the Variables
Finally, a historical decomposition analysis shows how the variables chosen describe and interpret history. Historical decompositions measure the cumulative contribution of each variable in terms of structural shocks to the evolution of one variable over time. For example, how each of the four variables used in this study contributed to explaining the evolution of pc GDP. They are important, for instance, for understanding the origin of the declines or increases in a given variable. Each row represents the decomposition of a variable into four structural shocks (pc GDP shocks, government expenditure shocks, money supply shocks, and exchange rate shocks).
Figure 7 (first row) shows how the variables of interest shocks (the decomposed series) affected pc GDP fluctuations. The bar chart indicates the fluctuations in pc GDP, and the solid line shows how the different shocks contribute to explaining the pc GDP. As expected, shocks to pc GDP account for most of the fluctuations in pc GDP throughout the period. With respect to the fluctuations in pc GDP, we can observe the three crises explained in Section 2 during this period in Spain. In Italy, there are less business cycle fluctuations than in Spain, one important crisis in the 1890s, and some decreases in terms of pc GDP during the 1870s and 1880s.
In the last Figure, the first row (Figure 7) shows how the exchange rate helps to explain the increases in pc GDP during the 1880s. In fact, exchange rate shocks seem to have contributed to Spain’s economy recovery. It also shows how, in 1895–1899, the exchange rate assisted the recovery of the Spanish economy from the late 1890s crisis, especially in 1898. Between 1895 and 1899, the exchange rate experienced both nominal and real depreciation. From 1900 onwards, the explanatory capacity diminishes with the change in economic policies and the appreciation of the peseta. Changes in the money stock further explain a significant proportion of the falls and rises in pc GDP. They seem to have particularly contributed to the recovery from the late 1880s crisis, the late 1890s crisis explaining the downturn before the loss of Cuba, and the recovery after this event and even the early twentieth-century crisis. Government expenditure helped to explain the ups and downs of the Spanish economy over the whole period. During the 1890s crisis, it helped to explain the upswing in GDP, while the fall in government expenditure due to the restrictive policies during the early twentieth century contributed to explaining the fall in GDP.
Figure 8 (row 1) shows how something similar occurred in Italy. Output fluctuations are largely explained by output shocks. However, the pc GDP fluctuations could also be explained, similarly to Spain, by exogenous factors, public consumption shocks, monetary shocks, and exchange rate shocks. Exchange rate shocks contributed to the increase in pc GDP in the late 1880s. When Italy adopted the gold standard, the positive impact of the exchange rate began to fall. At the end of the 1890s, we can observe how the exchange rate contributed to the economic recovery. As in the case of Spain, exchange rate shocks helped economic recovery in the crisis of the late 1890s. At the beginning of the twentieth century, as in Spain, the exchange rate shocks lost explanatory importance as Italy attempted to follow the rules of the gold standard and maintain a stable exchange rate. Contrary to what occurred in Spain, it seems that monetary shocks did not allow a higher pc GDP since they pushed down pc GDP during the 1880s
. Italy wanted to adopt the gold, and to do so, it needed to control the money supply to appreciate the currency. However, after abandoning the gold standard, monetary shocks contributed to the recovery from the late 1890s crisis and to small increases in pc GDP from the beginning of the twentieth century, similar to Spain. Shocks in public spending contributed to the decline in pc GDP from the mid-1880s. This coincides with the desire to adopt the gold standard and the need to maintain some fiscal discipline. Once it left the gold standard, public spending seems to have contributed to the economic recovery in the late 1890s as well as explaining the increases in pc GDP during the early years of the twentieth century.
Economic policies may depend on other policies. To understand this, rows 2–4 are useful. The second row (Figure 7) shows the historical decomposition of fluctuations in public consumption. Following the historical decomposition results, fluctuations in government expenditure in Spain could be explained by government expenditure shocks. Moreover, until 1895, pc GDP figures are highly relevant for explaining public consumption fluctuations. Monetary shocks and real exchange rate shocks were also important, especially during the 1890s. The shocks in public consumption in Italy explain most of the movements in public consumption (Figure 8, row 2). Periodically, variations may be observed, which can be explained by shocks in the money supply that justify the ups and downs during the whole period and by real exchange rate shocks to explain the increase in public consumption during the late 1890s and the decrease at the beginning of the twentieth century. Unlike Spain, pc GDP shocks are not important for explaining fluctuations in public spending.
The third row presents the historical decomposition of the money stock. The shocks in the public consumption played an important part throughout the period, especially in the upward trend during the late 1890s. The real exchange rate shocks helped to explain money supply fluctuations during the late 1890s and the beginning of the twentieth century. The same was the case in Italy, where the fluctuations in money supply are largely explained not only by money supply shocks but also by exchange rate shocks particularly when explaining the decreases after adopting the gold standard and pc GDP shocks. Public consumption shocks strongly contributed to explaining the fluctuations in money supply during the whole period.
The fourth row shows the historical decomposition of fluctuations in the real exchange rate. Shocks in the money supply largely explain the movements in the value of the currency during the whole period (Figure 7, row 4). They made a major contribution to explaining the ups and downs in the real exchange rate apart from the real exchange rate shocks. The same occurred in Italy (Figure 8, row 4). Moreover, fluctuations in the real exchange rate were mainly due to the real exchange rate shocks and public consumption shocks that help us to understand the appreciation before adopting the gold standard and the later depreciation during and after the abandonment of the gold standard.
In Spain, pc GDP is important most of all to explain public spending behaviour. Then, the rest of the variables were adapted to the fiscal situation. In Italy, this fact is not so clear, since it tried to maintain fiscal discipline and therefore disconnect economic policies from the country’s economic situation.
A natural way to perform a joint test of a structural and data model is to compare historical decomposition with external evidence (Kilian & Lee, 2014). This analysis is coherent with both Spanish and Italian history and shows how they are not as similar as once thought, at least in the past. The first conclusion that we can draw when observing the fluctuations of the pc GDP of the two countries is that the economic cycle was more stable in Italy than in Spain. Italy suffered declines in pc GDP in the 1870s and 1880s but to a much lesser degree than Spain, especially in the 1880s when Spain suffered more than Italy (see Figure 1). Following historical decomposition analysis, in both cases, the exchange rate seems to have contributed to the economic recovery of the early 1890s crisis in Italy and late 1880s and the late 1890s in Spain. Both Spain and Italy suffered a fairly negative impact from the crisis of the 1890s, which they overcame in a fairly similar way according to historical decomposition results. The exchange rate and money supply shocks seem to have helped both countries in 1890s recovery in terms of pc GDP.
Therefore, the historical decomposition results show that the depreciation of the currencies helps to explain pc GDP recoveries from different crises in Spain in accordance with the literature (Sardà, 1987; Sudrià & Tirado, 2001; Tortella, 1994). Depreciation of the currency in Italy appears important especially during early 1890s crisis according to historical decomposition analysis and according to Cesarano et al. (2012) and Tattara (2003). This would corroborate the role of the flexible exchange rate as a stabilizer of the economy, thanks to its ability to react to changes in the output. This is also highly supported by impulse response and local projection results for Spain, where a positive response of pc GDP to an increase in the exchange rate (depreciation) is found. In Italy, the first year pc GDP response to an increase in the exchange rate was negative; however, after 3 years, the response became positive. Therefore, for Italy, Edwards’s findings (Edwards, 1985) regarding the behaviour of the exchange rate can be corroborated following impulse response results (Figure 6). The effect of depreciation was negative in the first years, but positive later.
This difference could be due to the exchange rate being much more stable in Italy than in Spain, smoother fluctuations of the cycle, and the greater commitment to the norms of the gold standard. The lira only remained anchored to its metallic value for 5 years between the unification and the first war (Tattara & Volpe, 1997). The lira depreciated on a limited basis (it was flexible on a limited basis) and only when necessary. This was preferred to a strict adherence to the gold standard that would have meant greater restrictions on monetary circulation. In Italy, the money supply was less restricted and was used to monetise part of the deficits when necessary, while the exchange rate remained stable and was barely affected by changes in the money supply thanks to the equilibrium provided by the capital market. The inflow of foreign capital tended to appreciate the exchange rate, which gave greater stability (Tattara, 2003).
It may also be observed that the money supply in Italy slowed down in response to an increase in the exchange rate (devaluation) according to impulse response results, so it seems that an attempt was made to control the situation and not abuse the monetary expansion. When the exchange rate depreciated to a greater extent in the late 1880s and early 1890s, this depreciation was linked to the decline in the inflow of foreign capital that allowed the currency to be maintained without depreciation. For this reason, in the impulse response and local projection results, we can observe a negative response of the money supply to depreciation, because when the exchange rate depreciated, it was not linked to a growth in the money supply but to lower foreign capital inflows. The results obtained are in accordance to Tattara (2003).
Monetary policy played an important role in overcoming the two crises experienced by Spain in the 1880s and 1890s. According to Sardà (1987, p. 218), the fiduciary expansion brought about by pressure from the Spanish treasury was able to sustain the country’s economic progress. The historical decomposition analysis reveals that an upward swing in output in the Spanish crises of the late 1880s and late 1890s was explained by monetary shocks. In Italy, it was monetary policy that sustained growth during the period after abandoning the gold standard. On the contrary, controlling the monetary policy before adopting the gold standard in Italy prevented the country from reaching a higher pc GDP according to historical decomposition analysis. In Italy, an increase in money supply generated a decrease in public expenditure. In front of the domestic problem that generated an increase in the money supply, the Italian government responded by controlling the situation and the fiscal deficits to shadow the gold standard.
In both Spain and Italy, we can observe that the exchange rate shocks help to explain the increases and decreases in the money supply according to historical decomposition analysis. Monetary policy accommodated other policies such as exchange rate and fiscal policy, especially in Spain. In Italy, pc GDP shocks seemed more relevant for explaining money supply fluctuations than in Spain considering historical decomposition results. Therefore, we can say that the money supply in Italy responded more to economic conditions. In Spain, the money supply responded to fiscal policy due to a clear monetisation of debt (Escario et al., 2011, pp. 271–272; Sabaté et al., 2006, pp. 310, 321, 328). The impulse response function and the historical decomposition of the variables show that this policy accommodated the state’s fiscal needs in Spain. As studied by Sabaté et al. (2006), Spanish monetary policy was not independent in this period.
Why, then, did monetary policy respond more to economic conditions in Italy than in Spain? Because in Italy, it was the only policy, as government expenditure and the exchange rate were under control. A good explanation can be found in the study by Tattara and Volpe (1997). Different elements explain the lack of regulation of the money supply. The plurality of issuing banks and a large amount of public debt led to solidarity between the banks and the government to maintain or lower the interest rate and not use it to maintain metal reserves. The situation was complicated because the issuing banks were focused on corporate financing activities, a large part of their assets in industry and commercial activities, and restrictions on circulation could have generated a liquidity crisis for the entire financial system. The lack of control over the money supply together with the continued monetisation of the debt did not generate inflation or exchange rate instability. The lira was stable throughout the period and did not differ significantly from the stability of the currencies of other countries of the gold standard, and we can say that it was in the shadow of gold throughout the whole period. However, the money supply grew a lot in the late 1860s and early 1870s. The “surplus” money went to foreign markets and was used to buy Italian debt in the hands of foreigners. This is the reason why there was no inflation in the 1870s either.
Around the 1880s, state financing in Italy had been generated through public debt via foreign capital markets with the purchase of public debt (rendita) and through the import of capital. Foreign capital did not greatly increase the money supply. In the 1890s, foreign capital left the country due to the crisis related to the housing bubble and did not return in the form of emigrant remittances until the situation improved. The money supply in the small open economy was endogenous. The study by Tattara and Volpe (1997) explains the relationship between the money supply and the movement of capital. According to Tattara and Volpe (1997), it was international capital mobility that made it possible to follow the behaviour of the gold standard countries and that being in the shadows worked for Italy much more than adjusting the currency to a ratio between metal and paper (Dick & Floyd, 1992).
The exchange rate in Spain responded to monetary policy, taking into account both the results of impulse response and local projection and of historical decomposition. We can say that it acted as a transmission mechanism for monetary policy. However, in Italy, as we have seen, this positive relationship between money supply and the exchange rate did not exist.
The exchange rate lost importance in explaining fluctuations in GDP around the first decade of the twentieth century progressed in both countries according to historical decomposition results. Public consumption also lost its ability to explain the evolution of pc GDP in Spain from the twentieth century onwards. This is explained by a policy change beginning at the turn of the century that brought with it a small recession in the early years of the twentieth century. Spain reduced debt and carried out a tax reform to end the country’s poor fiscal situation. During the same years, Italy also made efforts to improve its economy and stay in the shadow of the gold standard, which meant it was trying to keep its exchange rate stable.
In Italy, in view of the results of historical decomposition, it seems that public spending does not help to explain the fluctuations in pc GDP. This could be due to the fact that it followed the rules of the gold standard. Most of the time, public spending did not respond to shocks in pc GDP. Rather, an attempt was made to control, except for the small increase linked to the speculative bubble. According to Tattara and Volpe (1997), the deficits in Italy were never explosive, and their duration was limited in time, although their number was large compared to other countries or Europeans but not to Spain (see Figure 5 and Table 3). Italy had a lower fiscal deficit. The liberal attitude and training of politicians on both the left and the right limited the amount of public spending that was made. As soon as fiscal discipline decreased, Italian politicians made efforts to regain it by reducing public spending (Tattara & Volpe, 1997). As we can see in Table 3, the deficits in Spain were much higher than those experienced by Italy. In Spain, there was no such control of public spending or shadowing of gold as in Italy until the twentieth century when slightly more fiscal discipline was exercised. The seigniorage that was carried out in Italy was small compared to Spain, where large increases in the money supply can be observed. An attempt was made to ensure that there was no excess liquidity in the economy (Barbiellini, De Bonis, Rocchelli, Salvio, & Stacchini, 2016).
In Spain, an increase in public spending generated a positive response from pc GDP in accordance with impulse response results (Figure 9). Public consumption contributed to the economic growth. However, this was not the case in Italy. An increase in spending generated imbalances that would have prevented the adoption of the fixed exchange rate system in the 1880s and that would not have allowed it to be in the shadow of gold during the early twentieth century. If we observe the fluctuations in public spending (Figure 7, row 3), we can only see a significant increase in spending after 1887, coinciding with the real estate bubble that burst later. During the rest of the period, public spending seems to have been kept under control.
It could be considered that the Italians had the better formula. In the same period, the exchange rate in Italy remained stable while public spending increased without incurring large fiscal deficits, and a growing money supply was maintained achieving sustained economic growth. Italy received more investment, enjoyed greater confidence from foreign investors, and was better able to manage its public debt. However, as shown in Table 4, Spain grew more in both total and annual growth. Spain came from a more backward position, which would explain the large increase in pc GDP between 1870 and 1913. However, the annual growth of Spain is also higher than that of Italy in terms of pc GDP. The freedom of not being tied to gold and being able to use the economic policy instruments necessary to face the fluctuations of the economic cycle could also help to explain this higher annual growth of pc GDP. We can also observe how exports in Spain increase more than in Italy thanks to currency devaluation. As we have seen, an increase in the exchange rate generated an increase in pc GDP (impulse response results). In Spain, the exchange rate was a key, since it helped improve the terms of trade and promoted exports. This could also explain the difference in economic growth between Spain and Italy. Despite having higher cycle fluctuations, Spain performed better in terms of economic growth (Figure 10).
|Comparison between Spain and Italy|
|Spain (%)||Italy (%)|
|pc GDP annual growth||1.33||0.94|
Sources: See data section for pc GDP.
This article presents an overview of macroeconomic policy instruments and their effects on the Spanish and Italian economies between 1871 and 1913. The Spanish case is relevant because it is the only Western country that was not on the gold standard. Italy tried to remain in the fixed exchange rate monetary system, but it was not able to do so.
These are two countries with difficulties to stay in a monetary system of fixed exchange rates. They both had public debt problems that made their adherence to a monetary system of fixed exchange rates very difficult. The two countries avoided using internal devaluation as a way to overcome the various fluctuations in the business cycle they faced. Outside the gold standard, both Italy and Spain were able to use the different economic policy instruments available for the recovery of their economies when necessary. Italy’s use of policy instruments was more moderate than in Spain, always seeking to stay close to the gold standard countries and therefore trying to keep the exchange rate stable and a certain level of fiscal discipline. Spain took this path at the beginning of the twentieth century when Fernández Villaverde’s policies showed concern about keeping the budget balance under control and managed to keep its exchange rate more stable than it had in the past.
This study confirms that adjustments in the exchange rate played a prominent role in the recovery from the crisis of the 1890s in both peripheral countries according to historical decomposition results. Having a flexible exchange rate proved crucial for sustaining economic growth and for overcoming fluctuations in the cycle by promoting exports especially in the Spanish case. An increase in government expenditure, the money supply, and the exchange rate generated an increase in per capita GDP in the Spanish case, while in Italy, only the money supply generated an increase in pc GDP according to impulse response results. The impact of using monetary policy was different in accordance to impulse response results. In Spain, monetary policy generated exchange rate depreciation but did not in Italy. Italy was able to balance its economy through capital flow and keep its exchange rate stable because it received a lot of foreign capital via both investment and remittances from its emigrants, which helped to balance the accounts and maintain the stability of the exchange rate. Whether Italy received greater investment due to its effort to stay close to the norms of the monetary system of fixed exchange rates or because the material conditions of the country made it conducive (high mountains for the production of electricity, among other factors) is a question that remains for future study.
According to both impulse response and historical decomposition analysis, public consumption seems to have contributed to the Spanish economy at least before the change in economic policies during the first years of the twentieth century. However, the same cannot be observed in the case of Italy. There is no positive response for Italian per capita GDP to an increase in public spending. Even more, an increase in government expenditure generated a decrease in pc GDP. Italy wanted to shadow the gold standard, and it controlled government expenditure and only experienced fiscal deficits when necessary. The Italian politicians were highly committed to the fiscal discipline linked to the fixed exchange rate monetary system.
These policies were effective, but were not independent of other factors; indeed, they responded to the economic conditions of the moment. In Italy, the money supply responded to the economic situation; however, in Spain, it was fiscal policy that responded to economic conditions and the money supply responded to fiscal policy. At the same time, the exchange rate responded to the evolution of the money supply. This chain did not occur in Italy, where the exchange rate remained stable for most of the period.
Spain suffered from more crises and was less committed to the gold standard. Italy experienced just one important crisis and was more committed to the gold standard (it adopted it without success but followed the rules of the game for most of the period). However, both countries experienced higher economic growth during the beginning of the twentieth century while trying to keep the exchange rate stable and shadow the gold standard. Despite having more fluctuations in the economic cycle, Spain grew more than Italy in this period. It is true that Spain came from a more backward position, but external devaluation also played an important role. This allowed a further increase in exports, generating higher growth for Spain.
It is interesting to observe how both countries maintained their public debt problems, but within the framework of the single European currency, they did agree to internal devaluation as a way to overcome the great recession. Within the European Monetary Union, monetary policy is in the hands of the ECB and fiscal policy is restricted by the union’s own rules. Spanish and Italian monetary and policy makers did a better job over one century ago than during the great recession and the sovereign debt crisis. They managed to expand their margin of manoeuvre more during the classical gold standard period than during the EMU.
Earlier versions of this article were presented at Cliometrics (2018) and Economic History PhD seminar at the University of Barcelona (2018). I wish to thank the participants for their feedback. I am also immensely grateful to José Antonio Miranda and Marianna Astore for their help. I thank 2 anonymous reviewers for their so-called insights. Any errors are my own and should not tarnish the reputations of these esteemed persons.
Funding information: This work has been published thanks to the financial support of the research project PGC 2018-093896-B-I00 Mediterranean capitalism? Successes and failures of industrial development in Spain, 1720-2020 funded by Ministerio de Ciencia e Innovación (Madrid), MCIN/AEI/ 10.13039/501100011033; and by the European Regional Development Fund, “ERDF A way of making Europe”. This work has also received fundings from Economic History Research group at the University of Alicante and from department of Applied Economics Analysis at the University of Alicante.
Conflict of interest: Author states no conflict of interest.
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