Productivity, Public Capital and Convergence: A Study of the Spanish Regions

This paper examines the relationship between convergence in GDP per worker and the evolution of total factor productivity (TFP). Specifically, data envelopment analysis (DEA) is used to estimate TFP in the Spanish regions between 1964–91. As original contributions, public capital is included as a productive input, and different price indices are applied for each region, thus isolating any possible effect of price evolution on regional efficiency and convergence. Finally, the TFP indices are introduced into a neoclassical convergence equation. The findings show, in constrast to other studies, that convergence has taken place in TFP, though this process may have now run its course. It is also concluded that the convergence to be observed in labour productivity across the Spanish regions may be much more closely linked to catch‐up in total factor productivity than to diminishing returns to productive factors, and that public capital has a relevant role as a production factor.