San José State University
Department of Economics
Thayer Watkins
Silicon Valley
& Tornado Alley


The Economy of Spain

Regional Development Policies and Programs of Spain

In the 15th and 16th centuries Spain was the dominant power of Europe and the Western Hemisphere. Its censuses of the time show that the central zone, which includes Madrid, was much more important than the peripheral regions on the coasts and along the French border. Even in the early nineteenth century the central zone contained about three quarters of the national population. In the twentieth century that relationship between the center and the periphery has been reversed.

Spain is a country of countries. In ancient times the Iberian peninsula was populated by a people whose descendants are probably the Basques. Celtic tribes crossed the Pyrenees about the middle of the first millenium BC and settled. The northwest corner of the peninsula is still called Galicia because of this celtic heritage. The Greeks and Phoenicians set up colonies on the coast. Later the Phoenician city of Carthage in what is now Tunis, North Africa dominated the region. Rome destroyed Carthage and conquered Iberia. When the Roman Empire crumbled Germanic tribes such as the Visigoths crossed the Pyrenees and set up kingdoms. In 711 AD Muslim invaders conquered most of the peninsula and established a caliphate. Christian Visigothic kingdoms survived in the north in Galicia and Asturia. They commenced an almost eight hundred year struggle to reconquer the lost territories. The Galicians liberated a major part of what is now Portugal from the Muslims by 1200 AD. The conquest of the other areas was not completed until 1492 when the armies of Castile and Aragon under Ferdinand and Isabela finally defeated the last reminants of the Muslims (and thus Ferdinand and Isabela could feel free to finance the voyages of Columbus).

Castile through its union with Aragon gained control of Catalonia and its principal city, Barcelona. The native language spoken by Catalonians is quite different from Castilian, the language which is usually called Spanish. Catalonia was an important commercial power in the Mediterranean.

The Basque country has become the most industrialized region of Spain, but Catalonia is also highly developed industrially and commercially. The regions in the south were agricultural and generally lagged behind the rest of the country in incomes and economic development.

Prior to the Spanish Civil War, all governments, right and left, tried to integrate the economy by building transportation that linked the peripheral regions with Madrid. There was a water development project of the Ebro in the 1920's and early 1930's which was said to be a predecessor of TVA.

The political upheaval of the Civil War and the isolation after the war resulted in economic stagnation. Franco professed a desire to pursue policies to regenerate the economy but established goals of self-sufficiency (autarchy) that thwarted growth.

It wasn't until the 1960's with the opening up of the economy that Spain began to really grow. Tourism was a major ingredient to this rise.

During the period of stagnation Spanish workers sought good paying jobs in Germany and elsewhere. The remittances sent home were important sources of foreign currency. credit to finance imports.

The typical annual funds available for economic growth were: $2.5 billion from tourism, $1 billion from foreign investment, and $0.5 billion from workers' remittances.

In more recent years the heavily industrialized Basque country is suffering from the effects of global competition. It is the same syndrome as known in the U.S. as the "Rust Belt." The south coast areas, which previously had lagged in economic development, are now booming with growth associated with tourism.

For the economic histories of other countries click here.

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