Portugal and Europe:
The Channels of Structural Interdependence
Jorge Braga de Macedo
"Economic growth can be sustained by emigration and higher wages as well as by unlimited supplies of labor and constant wages", Charles Kindleberger, Europe's Postwar Growth, the role of the labor supply. Harvard University Press, Cambridge, 1967, p. 87.
**lt is not possible to understand Portuguese life, for
the eight centuries during which it confronted successfully such different
situations, without understanding the Portuguese ability to combine, as
a sovereign state, the political advantages of independence with the conveniences
of European cooperation.
Portugal is becoming a member of the European Economic Communities in a turbulent economic and political environment which contrasts sharply with the one prevailing from the treaties of Rome and Stockholm to the first enlargement of the EEC.
Soon after the United Kingdom, Denmark and Ireland joined the Six, the international economic environment was shocked by the 1973 oil crisis and the great recession of 1974-75. The hesitant recovery was further undermined by the oil price increases and supply disruptions of 1979. The environment also suffered from a marked deterioration in the relations between the American and Soviet superpowers. The Western nations are thus confronted with continuing unemployment and inflation at home, a pressing need to conserve energy and a greater concern for military security.
The end of three decades of full employment growth has in turn complicated and slowed down the process of European integration. The increasingly divergent macroeconomic performance of West Germany on the one hand and France, Italy, and the United Kingdom, on the other, has been creating strains among the members of the EEC. There are major cleavages not only with respect to the new problems of energy and military policy, but also relative to the old objectives of coordinating monetary and exchange rate policies in the European Monetary System, reformulating the Common Agricultural Policy and financing an expanded Community budget.
In Portugal, the domestic political and economic environment was decisively affected by the 1974 Revolution. After a period of civil strife where the ideological pressure was largely anti-Western, the democratic government established in the summer of 1976 requested membership in the EEC, as promised during the electoral campaign. Economically, the shock of the oil embargo was followed, after the Revolution, by severe wage inflation, widespread nationalizations and expansionary fiscal policies. The cumulative external imbalance that came as a result of these policies led to a belated but effective austerity program in 1978. So effective that it has prevented the recovery of private investment and has widened the economic gap between Portugal and Europe. The transitional inflow of real resources necessary to avoid the adverse effects of full economic integration will therefore have to be larger than would be the case if the "catching up" process had not been interrupted.
Portugal, however, is not joining the Community alone. Soon after the Portuguese Revolution, regimes inspired by the Western norm of political democracy were also established in Greece and neighboring Spain. Accordingly, membership in the EEC was requested in 1975 and 1977 respectively and the negotiations with Greece were concluded in May 1979.
Even if the integration of the new entrants would not require aid for the restoration of macroeconomic equilibrium and an acceleration of economic growth, the Southern enlargement would have a significant impact on the Community, particularly in problem areas such as agriculture and "sensitive" industries. But, as the provisions of the treaty of accession of Greece show, the necessity of such aid is acknowledged and further strains on the Community budget are to be expected.
Thus, contrary to the expectation of positive short and medium run effects of European economic integration that led the original Six to set up the Common Market and to enlarge it in the early seventies, the expectation is that the current enlargement is more likely to have negative short and medium run effects on the Community as well as on its prospective members. On the other hand, the deterioration of the international political environment, without reviving the federalist dreams of the early days, has generated asense of fundamental European solidarity which made the second enlargement imperative.
Such a steep trade-off between political and economic incentives was absent in the earlier experience of the European Community which was largely based on the hope for consolidation of economic gains from increased structural interdependence into policy interdependence and ultimately political integration.
While the trade-off exists for the present members of the Community as well as for the new applicants, it is perhaps most dramatic in the case of Portugal. Since the Revolution, in effect, Portugal has become at the same time politically closer to the European Community and economically more distant from it. It is argued in this paper that Portugal benefitted from Europe's postwar growth by directing manufacturing exports and providing labor to a more advanced area. These benefits can be ascertained by a continuous increase in the real wage and an unusually strong balance of payments position.
The sensitivity to (marginal) economic developments abroad was thus greater at the time the 1972 free trade agreement with the EEC was signed than it is now or is likely to become in the near future. However, the domestic and international macroeconomic malaise did not prevent the EEC from showing a political responsiveness to Portuguese integration that was lacking then. To the point that "Europe is with us" became a major political slogan in the 1976 elections and that the government appointed after the December 1979 elections called European integration "the priority of priorities".
As the first opening quote suggests, the approach followed in this paper takes as given a national cultural identity that cannot be "integrated". Even if increased structural and policy interdependence and mutual political responsiveness does feed back on some European, or Western, socio-cultural homogeneity, "in which the separate cultures are held to coexist"1, the privileged domain of political and cultural identification remains the nationstate. In other words, if the only way for European integration to enlarge the consumption possibilities of the Portuguese population would be for it to massively leave the country, and the exodus would indeed take place, Portuguese cultural identity, as defined here, would be more likely to disappear than to coexist with the cultures of the host countries. The preservation of the Portuguese cultural identity will therefore be taken to enter the collective welfare of the Portuguese population.
The paper is organized into seven sections. Section I makes some comparisons between the EEC and the three candidates, together with comparisons of the candidates with each other.
While the latter comparisons show a fairly similar pattern of increased structural interdependence between the Nine and the three candidates via international trade and investment and labor migration, the failure to transform traditional agriculture is a singularly perverse feature of Portugal and is taken up in Section 2.
The next three sections analyze the main channels of economic interdependence between Portugal and the EEC. Section 3 describes the structure of foreign trade, emphasizing the growth of exports of manufactures in the sixties. Section 4 is devoted to foreign direct investment and its link with the export boom. Section 5 discusses emigration and the effects of migrants remittances on growth and the balance of payments.
The effects of interdependence, particularly emigration, on the process of growth with increasing real wages are taken up in Section 6. The implications of trends in the distribution of income in the early seventies for the macroeconomic difficulties that followed the Revolution are also analyzed.
Section 7 looks at the effects of structural interdependence on the prospects for "political integration". In line with the notion of cultural identity adopted in the paper, attempts at using structural variables to determine the "rational choice" of countries seeking to integrate are criticized at first. An overview of Portuguese foreign economic policy in the post war period and of the political and bureaucratic process that has led to seeking membership follows and it is used to interpret some evidence on societal attitudes about European integration. While outside the scope of the paper, brief mention is made of the wide range of issues, from fiscal harmonization to monetary integration, that pertain to the degree of policy interdependence between Portugal and the EEC.
The conclusion stresses again that the economic development of the territory is a crucial condition for the nation's cultural identity to survive European integration.
1. THE NINE, SOUTHERN EUROPE AND PORTUGAL
The economic homogeneity of the European Community at the time of the treaty of Rome in 1958 was certainly a major factor in the success of the establishment of a Customs Union in 1968, one and a half years ahead of the original schedule2. Countries with similar resource endowments, in effect, tend to engage in intra-industry trade, so that the distributional implications familiar from conventional trade theory are absent3.
The first enlargement created some preoccupation, not only because of the relative underdevelopment of Ireland and the special ties of the United Kingdom with the Commonwealth but also because of the inflationary pressures that had emerged in the late sixties. It turned out that Ireland was able to attract substantial direct investment but the other two concerns were indeed warranted. The "integration" of the U.K. in the Community has been painful for both and, of course, inflation, from being a reversible consequence of U.S. monetary policy, is now coupled with unemployment and a serious energy problem.
The reduced economic capabilities of the EEC have been associated with a greater contrast between "strong" economies, such as Germany, and "weak" economies such as Italy, the U.K. and possibly France. Both tend to bring to the fore difficult distributional issues within countries and at the Community level that were absent in the earlier period.
Furthermore, it is in the areas where stages beyond the Customs Union were attempted, such as agriculture and the coordination of monetary and exchange rate policies, that the most severe strains have developed.
The political commitment to a United Europe, which was crucial to launch the economic enterprise in the fifties, has nevertheless become such that the European Community is in the process of integrating its southern periphery4.
In fact, a well known document of the Commission5 emphasized that Southern Europe appears as a relatively homogeneous semi-industrialized region in the following dimensions: (1) a level of development considerably lower than the community average; (2) large scale and growing regional disequilibria; (3) considerable weight of agriculture in production and employment; (4) broadly similar structure in industrial production and particularly industrial exports; (5) very marked orientation of external trade toward the Community; (6) substantial source of labor for the Community; (7) high level of investment since the mid-sixties; (8) considerable structural underemployment; (9) importance of foodstuffs in the structure of private consumption; and (10) lack of infrastructure and a relatively low share of public expenditure in gross national product.
These common features "increase the problems which the new Community of Twelve will face in restoring growth and improving cohesion"6.
In particular, the complex and expensive system of price subsidies of the Common Agricultural Policy makes the accession of largely agricultural countries particularly burdensome for the Community and the member countries. The second enlargement, in fact, will imply a 56 percent increase in agricultural employment but only a 24 percent increase in agricultural production (in dollars). In 1975, agricultural output per man was $6.8 million dollars in the EEC and 3.2 in the three applicants (2.1 in Portugal), so that the Community of Twelve average would be $5.57. The expected increase in southern agricultural productivity will then imply substantial reallocation of labor to other sectors. This availability of labor for industry and services could generate a Lewis-type growth process in the enlarged Community, like it did in the EEC and its southern periphery in the fifties and sixties8. The current prospect, however, is that it will imply a worsening of the existing unemployment problem. In fact, if migration and capital mobility reinforce the tendency for factor price equalization through trade in goods and services, or if increasing returns to scale are widespread, manufacturing may disappear from the peripheral countries, worsening the disparity between the community and the new entrants.
The unequalizing process of expanded international trade and investment, which is familiar from the Marxian perspective on the development of a "world capitalist economy", is not only a theoretical consequence of the Second Enlargement9. The overall homogeneity of the Six original members of the EEC notwithstanding, regional disparities there have certainly not declined. Even in prosperous Germany the range of per capita incomes across regions increased by 1.5 between 1957 and 197010. This uneven development has occurred despite policies designed to prevent it, which are basically the responsibility of member countries. Given the serious regional disparities in the new applicant countries and the limited resources that they would be able to commit to that objective, it is not difficult to assert that the "golden triangle" of the enlarged EEC will continue to have vertices in Birmingham, Dusseldorf, and Milan11.
From the viewpoint of macroeconomic stabilization, if the member countries also forego exchange policy they will only be able to rely on fiscal contraction and deflation to correct a payments deficit12. In fact, in the case where the factor price frontier and the price of the traded goods are given, the peripheral economy's fate is completely determined from outside. Slow growth in the center will, therefore, increase the difficulty in duplicating successfully policies of "exploitative interdependence" such as the ones that Ireland was able to implement13.
This discussion can be illustrated with some rough comparative indicators about the performance of the present European Community and the three Southern European candidates from the early sixties to the mid-seventies, presented in Table 4.1. While the figures on productivity growth and the investment share in the European periphery are probably not accurate, it is clear from the Table that output (line 1) and output per employed worker (line 2) have grown there at a rate higher than the EEC average. The investment share in GDP (line 3) is, however, lowest in Portugal. Thus, in 1960-75, it is the country with the lowest output per capita that has the lowest rate of output growth of the three candidates. The same occurs with respect to productivity in the sixties. In the early seventies, however, productivity growth is reported to be over 5 percent p. a., in Portugal and Greece, which is twice as high as the figures of the EEC and Spain14.
The growth rates of the late seventies are accordingly higher in Portugal and Greece. However, in 1977 GDP per capita in Portugal was still at the 1973 level, because the 9 percent increase in the population due to the inflow of returnees from the African territories in 1974-75 offset the growth of output.
In the sectoral distribution of employment in the early seventies (line 4), Greece stands out with a much higher share of agriculture (and fisheries) than the two other applicants, which have a share comparable to the one of Ireland (25 percent). Similarly, the shares of manufacturing and services to Spain, and even in Portugal, are closer to the Nine than to Greece. This rough pattern is misleading, however, because it is in Portugal that, as we pointed put, the decline of agriculture is more alarming15.
2. THE PROBLEM OF AGRICULTURE
Despite a long tradition of exporting skilled labor intensive
wine products from the Douro valley, Portuguese agriculture remained largely
traditional during the post war period. As trade in manufactures, labor
emigration and foreign direct investment were generating a process of export
led growth, the contribution of agriculture declined from about one-fourth
in the 1940's to 4 percent in the sixties (Table 4.2,
Column 1). In 1960, furthermore, the agricultural trade surplus turned
into a deficit and its share in the total deficit increased steadily, to
an average of 10 percent over the decade (Table 4.2,
Column 2).
The productivity of labor in Portuguese agriculture, already noted as being the lowest by far of the three applicants, is also very low relative to the productivity of labor in other sectors. Thus the Kuznets "intersectoral ratio", which was close to two in 1950, increased to almost three in 1975, a level typical of countries with a very low GDP per capita. The typical tendency as GDP per capita goes up is, of course, for that ratio to become closer to one16.
Agricultural employment declined by 35 percent over the period 1960-75. Had it remained constant, however, real value added would have increased at an annual rate of one half of one percent. The lack of investment in agriculture, is responsible for this stagnation. When emigration was largest, the share of gross fixed capital formation in agricultural GDP was below 10 percent17.
There were, nevertheless, instances of transformation of traditional agriculture, in particular the success stories of tomato concentrate and paper pulp, exports of which to the EEC were multiplied by a factor of forty and twenty-four respectively over the decade, while to EFTA the factors were nine and four respectively. Some modernization also occurred in the production of meat and fruit for the domestic market18.
In any event, as shown in Table 4.2, the situation deteriorated further in the seventies. Agriculture had, on an average, a negative contribution to growth of about 5 percent and the agricultural share of the trade deficit rose to 18 percent. Figures for the years after the Revolution would be even worse. In 1975, agricultural output declined by 7 percent and the agricultural share of the trade deficit shot up to 30 percent. In 1977, output declined by 10 percent but due to the high trade deficit, the agriculture share dropped to 20 percent19. Bad harvests certainly played a part in the decline of crops in 1976 and 1977, but the chaotic "Agrarian Reform" conducted by the Communist Party in the Southern Provinces of Alentejo in the Summer of 1975 had a decisive negative impact on output and productivity. At the same time, wage increases in the urban sector swelled the demand for food so that agricultural imports rose by 25 percent in 1976 and 50 percent in 1977.
The political effects of the Agrarian Reform were also decisive20. To begin with, they prevented an attack on the problem of small low-output farms in the North. According to the 1968 Census of Agriculture, three-fourths of the land holdings were under 4 ha of area and 39 percent under I ha, whereas .5 percent of the farms—about 4700—held 45 percent of the land in units of 100 ha or larger. About 500 "collective units of production" (UCP) are still controlling 25 percent of the land in units of 100 ha or larger. In the three main districts of the Agrarian Reform - Beja, Evora and Portalegre21 - the UCP area per work is 30.7, over twice what it was in 1970.
Attempts by successive non-Communist governments to break up these units faced strong resistance and led to major parliamentary crises in the summers of 1978 and 1979. The greater determination of the government appointed after the December 1979 elections notwithstanding, agriculture is likely to remain a serious economic and social problem in Portugal.
Aside from the already mentioned lower agricultural productivity in Portugal (74 percent relative to Spain and Greece in the mid-seventies and 34 percent relative to the Nine), farmed area per worker was 56 percent relative to Greece and about 40 percent relative to Spain and the Nine. The same holds for area productivity, in wheat it was about the same as in Greece, over half of the Spanish figure and 23 percent of the French. In rice, on the other hand, productivity was about the same as in Spain and higher than in France but it was 79 percent of the Greek figure. In wine, area productivity in Portugal is about the same as in Greece, but 58 percent of the Spanish figure, half of the Italian and less than half the French. In terms of fertilizers, Portugal is 80 percent below Greece and 44 percent below Spain in nitrogen use. The irrigated share of the cultivated area is higher than in Greece but almost half of the Spanish figure22.
Agricultural trade between the three applicants and the EEC is quite asymmetric. Ninety percent of Portugal's agricultural exports are directed to the EEC (50 percent for Spain and 60 percent for Greece), whereas the EEC share in agricultural imports is only 19 percent (28 percent for Spain and 17 percent for Greece). The reason for the lower import share is, of course, that the Common Agricultural Policy has resulted in trade diversion in all temperate zone ("northern") products, particularly cereals23. On the export share, however, the applicants' agricultural products have had access to the European market thanks to various trading arrangements. As a consequence of these preferences, there are less static gains from full membership for producers to be expected than would have been the case if agricultural exports would have been subject to EEC external tariffs24, but they can nevertheless be substantial if the CAP price does not fall. Conversely, consumers in the three applicant countries will clearly lose from the higher prices of agricultural imports.
For Portugal, there is evidence that producers of corn, rice, and olive oil will benefit from CAP prices, whereas less efficient producers of wheat and milk will suffer and all "grain-beef" production will be competed away by more efficient EEC farms. The comparative advantage of Portugal in agricultural products involves a similar ranking. In fact, at world prices, grain-fed livestock production has negative value added25. On the other hand, the Community preference will imply higher prices for Portuguese consumers and therefore a substantial increase in the current subsidies until real incomes grow sufficiently to absorb the higher price of food in the EEC.
These prospects are, however, dependent on a substantial effort in spreading the modernization of Portuguese agriculture. The inability to do so has had severe costs both on the short run macroeconomic adjustment process, via the balance of payments, inflation and unemployment, and on the probable effects of European integration. This makes the political constraints that have prevented agricultural recovery costly indeed.
3. FOREIGN TRADE AND INDUSTRIAL GROWTH
The structure of Portugal's balance of payments has been characterized over the centuries by a merchandise trade deficit covered by unrequited transfers and the monetization of bullion. In the sixties, emigrants' remittances, receipts from tourism and, later, foreign direct investment increased to such a degree that substantial gold reserves were accumulated. During that period, the rapid expansion of exports was matched by increased imports. Thus, in the late fifties the proportions of merchandise exports and imports to gross domestic product were 13 percent and 18 percent, whereas the figures for the early seventies were 16 percent and 27 percent respectively26. The leading sector during this period was manufacturing, the share of which in gross domestic product climbed from 30 percent to 35 percent between 1963 and 1973, while output was growing an average of 7 percent p. a. Sources of direct growth in manufacturing during the period were domestic demand expansion (71 percent) and export expansion (45 percent), while import substitution made a negative contribution of 16 percent of manufacturing output growth27. Export growth, in turn, was clearly associated with the participation in the European Free Trade Agreement. While exports grew at 9 percent p. a. in volume (and 11 percent in dollar terms as shown in the last row of Table 4.3) during the sixties, exports to EFTA grew at 16 percent p. a. in volume.
The evolution of Portugal's main exports from 1963 to 1975 is reported in Table 4.3 by SITC categories. Food exports, including wine (SITC 03+05+1121) declined from 22.2 percent in 1963 to 12.3 percent in 1975. The same occurred with wood, cork, and its manufactures (24+63) which declined from 17.4 percent to 8.3 percent in the same period while paper exports (64) increased. The most significant export is still textiles (65) which nevertheless declined from 22.2 percent to 16.1 percent while clothing and footwear (84+851) increased from 4.3 percent to 13 percent. The remaining items include chemicals (5) metallic (69) and non-metallic (66) manufactures, machinery (71), particularly electric (72) and transport equipment (73). Together they increased from 17 percent to 47 percent during the period.
It is therefore clear that a process of replacement of traditional exports of "light" manufactures like textiles by "heavier" manufactures has been going on. Available evidence on the physical and human capital intensities of Portuguese exports confirms that they increased substantially during the period, in particular the latter. Nevertheless, almost one-third of Portuguese exports in 1975 were still accounted for by textiles, clothing and footwear.
While the EFTA agreement allowed Portugal to postpone dismantling her own trade banners, the fact that tariffs on most products were specific led to a substantial erosion of protection when world prices began to increase in the mid-sixties;so that by the early seventies the average nominal tariff was less than 10 percent. Based on the 1974 input-output matrix, Table 4.4 reports rates of nominal and effective protection for three broad categories of traded goods. While the nominal rate is probably overstated, since it does not include the effect of exemptions (which are believed to be widespread), it is interesting to note that when domestic import competing inputs are valued at world prices (effective rate two), consumption and investment goods industries had about the same rate of protection in 1974, but the latter were substantially more protected after the 1976 surcharge.
Furthermore, taking into account that investment goods are mostly imported - the ratio of imports to total trade in that category being around .8 - we can see that investment goods were also more penalized than consumption goods. In fact, the premium implicit in the effective rate of protection and the trade structure is substantially higher for investment goods (56 percent using effective rate one and 47 percent using effective rate two) than for intermediate goods (respectively 30 percent and 28 percent) or for consumer goods (respectively 28 percent and 20 percent)28.
Taking into account that the import content of domestic investment is about 45 percent, whereas the import content of consumption is only 25 percent29, the justification of the higher premiums on investment goods on balance of payments grounds only dramatizes the trade-off between short run adjustment and long run growth objectives that policy makers were facing at the time of the import surcharge.
Table 4.5 describes the direction of Portugal's trade in 1976 and the extraordinary importance of Europe, in particular the EEC, is apparent on the export as well as the import side with over 51 and 41 percent respectively. Even though the low share of the former African territories is a direct consequence of decolonization it had declined on the export side from 30 percent in the late fifties to 24 percent in the late sixties. Similarly, the import share remained fairly constant at 15 percent.
The structure of trade in manufactures between the Nine and the three southern European candidates in 1976 can be condensed by means of a rough indicator of comparative advantage, obtained by comparing the share of exports and imports of commodity in total exports and imports respectively30. If the index in Table 4.6 is positive, the country tends to export rather than to import that commodity (relative to the total exports and imports) and is therefore taken to reveal comparative advantage in the production of the commodity in question. It is clear that "real" comparative advantage cannot be derived from actual trade figures because the index reflects trade distortions like tariffs on imports or subsidies on exports. Accordingly, as far as Portugal is concerned, comparisons of the index over time are bound to reflect the effects of trade liberalization in the context of EFTA and of the 1972 free trade agreement with the EEC31.
With these caveats in mind, the similarities of the three Southern countries are apparent in the comparative advantage for leather, wood and cork, textiles, small appliances, travel goods, clothing and footwear, the SITC code of which is circled, and the comparative disadvantage for dying products (53), medical products (54), plastic materials (58), rubber manufactures (62), electric and non-electric machinery (71 and 72), and transport equipment (73), the SITC code of which is underlined. The only range of products where all countries reveal a comparative advantage are sundry manufactures of metal (SITC 69). The only group of products for which Portugal alone reveals a comparative advantage are paper manufactures (64) and the index is the highest of the four for chemical materials (59) and wood and cork (63). On the other hand Portugal is the only one to reveal comparative disadvantage in iron and steel (67) and has the lowest value for chemical elements (51), perfumes (55), plastics (58), non-ferrous metals (68) and miscellaneous manufactures (89).
Portugal reveals therefore a pattern of simultaneous comparative advantage in primary products and unskilled-labor-intensive manufactures on the one hand and manufactures with a higher (physical and human) capital intensity, on the other. This is, of course, a typical pattern for a semiindustrialized economy32.
4. FOREIGN DIRECT INVESTMENT
From 1962 to 1973, as we pointed out, migrants' remittances more than offset the traditional Portuguese trade deficit, so that the current account was in surplus. Both in 1961 and since 1974, the current account deficits were financed mostly by transactions of the monetary institutions. However, since the early sixties Portugal often recorded surpluses on the non-monetary capital account, inparticular via foreign direct investment. Aside from its relative importance in the private capital account, contrasting with other Southern European countries33, direct investment is an important channel of structural interdependence because of its role in the transfer of technology.
Despite a very high rate of growth in the late sixties and early seventies, the stock of foreign direct investment in Portugal remained small in comparison with other Southern European countries. In 1970, for instance, U.S. direct investment per capita was $15 in Portugal, $22 in Spain, $38 in Italy, and $144 in Great Britain34. Total annual flows, about $30 million in 1971, reached over $62 million in 1978, below the pre-revolutionary peak of $85 million in 1973. Of these, $35 million represented the formation of new companies, which after declining to less than half in 1975 (the 1971 value) was back at that rate in 1977 and increased slightly in 1978. The book value of foreign direct investment for that year was estimated to be about $400 million, or 5 percent of the total investments of developed OECD countries in the Southern European Area (including Turkey and Yugoslavia).35
In the total stock, the EEC had a share of 50 percent, whereas the U.S. share was 20 percent. The shares of flows, shown in Table 4.7, vary widely often due to individual operations. The divestment of the U.K., which once had the largest share, started in the late 60's. Germany divested significantly after 1975 and France never had a significant share. The 1977 EEC share is therefore from the smaller member countries. "Other OECD" includes not only Canada and Japan, which have been negligible in the last few years, but also the mini-EFTA, in particular Switzerland, which increased her share from 9 percent in 1975 and 11 percent in 1976 to 27 percent in 1977. The share of the U.S. which was at a low in 1973 also increased in the following years, whereas the importance of the Rest of the World declined.
For contrast, we might consider the shares of the proposals submitted to the recently established Institute of Foreign Investment in 1979.36 Here the substantial difference in shares is accounted for by different definitions and coverages aside from the effect of individual proposals. For example, Sweden jumped from a share of 2.2 percent in 1978 to 14.3 percent in 1979 with only three operations.
The major sector of destination of foreign direct investment has been manufacturing (27 percent in 1972-76 and 42 percent in 1977-78), followed by trade and tourism (20 percent in 1972-74, 31 percent in 1975-76 and 37.6 percent in 1977-78). Within manufacturing, sectors with annual rates of export growth higher than 20 percent37 such as electronics, paper, rubber, chemicals and metal-works accounted for 57 percent of foreign direct investment by 200 firms in the early seventies. This export bias is confirmed by the analysis of the relative performance of domestic and foreign firms in textiles and electrical components38.
5. EMIGRATION, REMITTANCES AND THE BALANCE OF PAYMENTS
Portuguese emigration resumed soon after the end of the second world war and reached 24 thousand workers in 1952. It declined later in the decade and did not attain the 1952 peak until 1963. In 1964, however, it went over 50 thousand and continued to increase until 1970, when 100 thousand workers left the country. Total emigration, including families, was about 1.5 times higher. In the early seventies, while the outflow of workers dealined, the family factor increased to two39.
Table 4.8 provides comparative information on the relative sizes of foreign workers in the main EEC countries and the relative importance of emigration for the peripheral countries in the mid-seventies. It is clear that the preferred host country of Portuguese emigrants is France (81 percent) and that Portugal has by far the highest share of foreign workers in domestic employment.
Despite the importance of emigration, the differential between the Portuguese wage and a weighted average of the main host countries to Portuguese remained substantial. Indeed, it may have increased: it was estimated to be of the order of 1/17 in 1953 and 1/20 in 197240. Since 1973 the differential in real wages narrowed and then widened, in a pattern similar to the one of the domestic real wage (see Chart 4.3 below), except that the increase was never higher than 7 percent in late 1974 and that, having returned to the base value inlate 1975, it was less than 80 percent thereof three years later41.
Nevertheless, the effects on the steady-state rate of growth of the economy would have been quite unfavorable if remittances would not have increased domestic savings substantially42. But Portugal received consistently higher remittances per capita than other Mediterranean labor-exporting countries43, and in 1972, remittances reached 26 percent of foreign exchange receipts and 38 percent of reserve money44.
As mentioned above, a dramatic change occurred with the world recession, since emigration stopped and remittances in current dollars ceased to increase in 1974 to actually decline in 1975 when over half a million refugees - about the same number as the emigrants in Table 4.8 - were returning from the former colonies. The political stabilization of 1976-77 notwithstanding, remittances only increased when interest rates were substantially raised in 197845.
Since aggregate expenditure is equal to national income - inclusive of remittances - less the current account, the evolution of the economy over time can be interpreted by comparing the deficit on goods and services to the surplus on unrequited transfers46. This is done in Chart 4.1 for the period 1959-1979, using the U.S. wholesale price index as a deflator to obtain values in units of purchasing power over U.S. goods. Until 1965, the current account was in deficit but, except for 1961, when the incidents in Angola led to an extraordinary increase in the deficit on goods and services, the gap between income and expenditure was not too large. As remittances start to increase continuously between 1965 and 1973, income becomes larger than expenditure. The combined effect of the increase in the real trade deficit and the decline in real remittances in 1974 was to create a huge income-expenditure gap, which was only corrected in 1979, due to the substantial increase in real remittances.
The evolution of the Portuguese balance on non-monetary transactions is documented in Chart 4.2, using the same deflator as previously47. Private capital movements, unlike remittances, have not been as important in Portugal as in other Mediterranean countries, but the banking sector and the Treasury accumulated foreign exchange consistently from 1962 to 1973. Reserves were also increased by some precautionary foreign borrowing by the State while post-war legislation enhanced the preference of the Central Bank for gold reserves48. Therefore, despite the brutal decline in the foreign asset position in 1974-77, over half of the Bank of Portugal's reserves are still in gold, which, valued at the free market price was 10 percent higher than the total foreign liabilities of the public sector at year-end, and had recovered to 25 percent higher by mid 197949. In fact, the 688 tons of gold held by the Banco de Portugal at year end were worth more than $11 billion at the London price of gold, and they were valued at $1 billion50.
6. THE REAL WAGE AND INCOME DISTRIBUTION
From the mid-fifties to 1970, there was a steady increase in the real wage in manufacturing in the Lisbon area, the trend in which, depicted in Chart 4.3, can be taken as a rough indicator of the marginal value product of labor relative to the price of the consumer basket51. Increasing demand for labor during the import-substitution growth of the fifties continued when the association with EFTA generated the process of export-led growth. In the sixties this process was sustained by reduced supply due to increasing migration52.
Furthermore, rural migration went directly out of the country, rather than first to the city, as was the case in Greece and Spain53, so that unemployment was low in agriculture as well as in manufacturing.
In part as a consequence of continued excess demand for labor, the corporatist institutions designed in the thirties to fight unemployment became unable to respond to workers' needs in an effective way, thus leading to some clandestine attempts at trade unionization. Increased tourism, in particular by emigrants, on the other hand, had a demonstration effect in creating or reinforcing a trade-unionist attitude in the industrial working class.
In the early seventies, as the stock market was experiencing a speculative boom, industrial concentration was reaching a "European" scale and labor productivity was growing at over 10 percent per annum, inflation and wage controls led to a stagnation, and maybe even a small decline, of the real wage, as shown in the Chart54. On the other hand, the protracted war effort overseas, a political issue since the 1969 elections, was becoming increasingly divisive, even within the Armed Forces.
In 1973, civilian opposition to the government was exacerbated by the poor harvest and, above all, the dramatic oil embargo, while adverse military developments in the Guinea front threatened to bring about a confrontation between the government and the Army. The situation deteriorated sharply in early 1974 and, as the world economy was sliding into the deepest postwar recession, the "Armed Forces Movement" staged a swift and bloodless coup on April 25.
The civilian opposition to the old regime, the only organized core of which proved to be the Communist Party, was thus brought to power. Wage policy became more and more divorced from market considerations, so that nominal wages took an upward jump and, as inflationary expectations were temporarily reversed, real wages increased substantially. Interestingly, militant wage increases were often brought about by far-left unions, against the recommendations of Communist leaders. In any event, as shown in the Chart, the increase in total labor costs was even larger, and accelerated in 1975, even though the price index used to deflate annual earnings excludes controlled rent and therefore also increased faster than the one used to deflate daily wages.
The difference is, however, not crucial to the "relative deprivation" story of the Portuguese Revolution suggested by the inverted J pattern of the real wage in the antecedent years55. This story helps to explain how a seemingly reformist military coup precipitated into the "Lisbon Commune" of mid-1975 before returning to its initial vocation after the failure of the November 25 coup. It would be difficult to imagine such a wage policy if the bureautically planned economy advocated by the organized core would not have been entirely bypassed by anarchaic but initially successful attempts of consumers to increase their living standards.
There is conflicting evidence on whether the sharp decline in the real wage began in 1976 (solid line in the chart) or in 1977 (broken line). The latter picture emerges from looking at the labor share in national income, but similar caveats about the poor quality of the data have to be borne in mind. Thus, the percentage of net national income at factor cost going to labor, including employers' Social Security payments, increased by 15 percentage points from 1973 to 1975 and stayed constant in 1976. However, it propped by 10 percentage points from 1976 to 197856," the same order of magnitude of the drop in the daily real wage.
So, while it is clear that the equilibrium real wage has fallen57, it is not clear from the Chart whether actual wages are at the 1973 or at the 1966 level, an emotionally and politically important issue.
Furthermore, the increase in the progressivity of wage taxation was also quite drastic. Between 1973 and 1977, nominal before tax wages would have to double for lower income and be multiplied five fold for higher income so as to preserve after tax purchasing power over domestic goods; and the factors would become five and eleven respectively for purchasing power over U.S. goods58.
That the fall in real wages could have been such a central feature of an adjustment process largely conducted by "pro-labor" governments may be explained by workers perceiving that most of the post-revolutionary increases could not be but temporary and thus adjusting expectations downward substantially. Nevertheless, it is probable that some money and exchange rate illusion on the part of workers has also been present.
The decline in absolute living standards can be related to evidence on the size distribution of income showing that at base period prices the middle range increased its share from 35 percent to 60 percent between 1968 and 1977 (see Table 4.9). At 1973-74 prices the increase in that same range is from 42 percent to 52 percent, whereas the three highest brackets increase from 8 percent to 37 percent in the same period.
In short, the fact that personal distribution of income in Portugal is more equitable made it easier to accept that the standard of living of the workers, in particular skilled workers, would have declined relative to the early seventies, immediately after the across the board increases of 1974-75.
7. IMPLICATIONS OF STRUCTURAL INTERDEPENDENCE
In the literature of the fifties and sixties, political integration - in the sense of the establishment of a security community - was approached as an "incremental" result of the dismantling of national barriers to the movements of goods and factors of production between countries characterized structurally by economic interdependence and socio-cultural homogeneity and behaviorally by mutual political responsiveness59. The quantitative variant of this approach is thus mostly concerned with the identification of, and correlation among, attributes of various countries with respect to the structural dimensions, supplementing the analysis with measures of mutual political responsiveness such as patterns of U.N. voting and membership in international organizations60.
The attributes are then reduced to a few orthogonal factors which operationalize the main dimensions of structural homogeneity. For example, using as factors "economic development", "Communism", "intensive agriculture", and "Catholic culture"61, the world in the late 50's was divide into four geographically well-defined regions, Afro-Asia, Western Community, Latin America, and Eastern Europe, and a group of "semi-developed Latins" including Spain, Portugal, Chile, Uruguay, Puerto Rico and Cuba, half-way between the Western Community and Latin America62.
The "region" where Portugal is integrated according to these results, has interesting implications for the idea of Iberian unity, historically attempted by military and doctrinal means, but systematically resisted by the population63. Naturally, the factors chosen are not able to capture the "Western Community" dimension that the policies of Portugal in the African territories and with respect to Brazil were taken to have in the idiosyncracies of the rulers of the time. But they do suggest indirectly the major change brought about by the membership in EFTA in 1960 and the growth of labor migration toward the EEC by giving a measure of the original distance between Portugal and Europe64.
Another major change, relating to the behavioral variables as measured, refers to voting in the United Nations, which changed dramatically when the issue of self-determination became central - and Portugal was candidate for membership in the Security Council65. The only political link to the Western Community in terms of mebership of regional organizations was then to be the North Atlantic Treaty Organization.
Indeed, the participation of Portugal in the international economic institutions that emerged in the post-war period was a cautious one. Portugal was a founding member of the Organization for European Economic Cooperation and the European Payments Union in 1948 but it only participated in the Marshall Plan in 1950. Having become a founding member of the Organization for European Cooperation and Development, she joined the European Monetary Agreement in 1958. In 1961, soon after EFTA was created she joined the World Bank and the International Monetary Fund66.
The membership of EFTA took place in the particularly favorable conditions set out in the G Annex to the Treaty of Stockholm. As the main partner of EFTA, the United Kingdom, prepared to join the EEC, Portugal signed a free trade agreement with the EEC in May 1972, while remaining in the mini-EFTA to the present. With the 1974 Revolution the intention was expressed to expand the 1972 Agreement in view of joining the EEC, since the political obstacles to membership had disappeared.
The process was delayed by Portugal's domestic troubles and only in November of 1975 did the European Investment Bank approve an emergency loan to Portugal, which was incorporated in the June 1976 Additional Protocol to the 1972 Agreement. This implied in particular that the calendar for dismantling of Portuguese tariffs on industrial products was postponed from 1980 to 1985 while the complete elimination of EEC tariffs was anticipated from 1977 to 1976 and new tariffs on infant industries could be levied until 1981. The agreement is, however, not applicable to "sensitive" industrial products and to transformed agricultural products67.
In March 1977 the Portuguese government formally applied for full membership in the EEC and the European Commission advised the Council to accept in April 1978. Negotiations opened formally in October 1978 but problems of bureaucratic politics on the Portuguese side delayed progress until the Spring of 197968.
The slow progress in the negotiations, in comparison for instance with Spain, may be one factor explaining the attitude of ignorance about the EEC that is evident from the responses in the top panel of Table 4.10. Even though survey data are to be handled with care, and a comparison with evidence from other applicants, or even members, would not reveal a much greater knowledge, a percentage of over half of the population of the two largest cities suggests a very high national average indeed.
Another striking feature of the Table refers, instead, to those who know what the Common Market is. In effect, a clear distinction appears between the residents of the coastal cities of Lisbon and Porto who take the view that membership will make life worse with respect to crime and cost of living, and the cities of the interior, Beja in the South and Guarda in the North, where the opposite belief is expressed. The industrial city of Leiria - North of Lisbon - falls in between since the cost of living is expected to decline. With respect to taxes, furthermore, an increase is expected by everybody, particularly in Leiria and Lisbon. In turn, the issue of "Agrarian Reform" is believed to become "worse" in Lisbon and neighboring Leiria but not in the "red capital" of Beja, where incidentally unemployment is also believed to improve. Another interesting aspect of the responses is that there is an across the board belief that the "economic crisis"--a staple in the political vocabulary--will improve.
Overall, the responses would suggest that European integration, while ignored in its institutional underpinnings, is taken as given by the urban population who tends to consider it a step in solving the "economic crisis". This may be related to the suggestion made in the previous section, that the attitude of the population toward the government changed dramatically with the perceived change in late 1973-early 1974 in the tradeoff between economic prosperity and political freedom. Similarly, the disappointment of the euphoria of the Revolution, which seems to be pervasive in Portugal at the moment - and would be easy to infer from the brutal drop in real wages - was probably important in shaping the attitudes toward the European Community revealed by Table 4.10. Indeed, it may well have been more important, not only than the reduced media coverage of the negotiation process but also, for that matter, than the channels of structural interdependence of the early seventies.
This is another way of saying that there is increasing awareness of the implications of policy interdependence69. Aside from the serious requirements of fiscal harmonization, particularly the introduction of a direct tax on overall income and a value added tax, economic integration has strong implications on the effectiveness of the instruments of macro-economic stabilization policy. Even after the economic liberalization the last years of the earlier regime, administrative controls remained the preferred policy instrument and were supplemented after April 25 by the extinction of emerging capital markets and the drastic expansion of the public sector that culminated in the nationalizations of 1975. It was not until the stabilization program agreed upon with the IMF in mid-1978 that a greater reliance was placed on market mechanisms. The spectacular recovery of exports and remittances in 1978-79 allows some optimism about the effectiveness of these signals, but they will certainly not be enough to solve the formidable twin problems of short term stabilization and long run growth. While the analysis of these problems is beyond the scope of this paper, the objective of stabilization does introduce a new dimension in the optimality of European integration, having to do with public rather than private goods. It has been shown that the optimum size of the integrated area differs sharply for these two types of goods; whereas technological forces lead to a large optimal area for private goods (in the limit the world), different preferences for the provision of public goods, in particular across cultural boundaries, point to a much smaller optimal area there70.
The deterioration of the international environment acquires then an added relevance, insofar as the increased "turbulence" has effects on the decision making process. Even if these effects are not such as to lead to the abandonment of the "incrementalist rationality"71, the new tradeoff between political and economic aspects of the Second Enlargement in general, and of the accession of Portugal to the EEC in particular, can certainly be seen as counter-examples to traditional "political integration" theory. And it is puzzling that this issue be conspicuously absent from the usual professional fora.
8. CONCLUSION
A few years ago, Portugal was advertised to English speaking tourists as "Europe's best kept secret." Turning the slogan around, one might say that the consequences of European integration have been Portugal's best kept secret. Despite electoral pledges about Europe's stake in Portuguese democracy, most people do not seem to even know what the Common Market is.
True, beyond presenting membership in the European Community as a natural consequence of the passing of the "imperial cycle" of the nation's history, post revolutionary governments gave little systematic attention to the problem. A very recent statement of European intent notwithstanding, the political establishment has been attempting to find a workable compromise between the hopes of April 25 and the realities of twelve governments in six years. The increased population is adjusting to a painful decline in living conditions and the "animal spirits" of the remaining entrepreneurs are still affected by the overhang of the massive nationalizations of 1975 and of the irregular enforcement of the laws of agrarian reform. Concern over short run macroeconomic stabilization objectives has recently been competing with electoral politics, with detrimental consequences for the long run growth prospects of the territory.
This paper argued that, whereas Portugal can probably expect to receive some real development resources from the Community, it is quite mistaken to believe that the economic consequences of joining the EEC will be the financing by the Community of the remains of "Portuguese democratic socialism." In fact, even if the Twelve restore overall cohesion and growth, structural interdependence alone is not likely to support the process of autonomous economic development which is essential for European integration not to lead to national disintegration.
When the prospects of increased interdependence are interpreted in this light, passivity in the negotiations becomes a dangerous "laissez faire" substitute for the traditional Portuguese caution in dealing with her powerful neighbors.
NOTES
1. Kindleberger, op.cit., p. 191. This he calls "cultural
pluralism" and contrasts it with the traditional notions of "melting pot
and assimilation".
2. This is well documented in B. Balassa, editor, European
Economic Integration, Amsterdam: North Holland, 1975, particularly
p. 108 ff. See also our review; "Vinte anos de integração
económica europeia," Economia, Vol. I, No. 2, May 1977, p.
369-373.
3. P. Krugman, Intraindustry Specialization and the Gains
from Trade, mimeo, MIT, August 1979, has a model of the transition from
Hecksheer-Ohlin to intraindustry trade which brings out Balassa's early
findings, reviewed in op.cit.
4. The dependence/interdependence controversy is explored
in J. Macedo, Interdependencia Económica, Sistema Monetário
Internacional e Integração Portuguesa, Banco de Fomento
Nacional Estudos, 12, Lisbon, 1977, part 1.
5. See European Communities - Commission, Economic
and Sectoral Commission Analyses supplementing its views on enlargement.
Supplement 3/78 to Bulletin of EC, n°48 (emphasis in the original).
6. Ibid. n° 48.
7. Ibid., No. 71. The productivity figures are from T.
Josling, Problems for the Common Agricultural Policy of an Enlarged European
Community, paper presented at the Conference on Portugal and the Enlargement
of the European Community, organized by Inteuropa and the Trade Policy
Research Centre, January 1980, hereafter referred to as Inteuropa. See
also L. Katseli-Papaefstratiou, "Enlargement of the European Community
and the Common Agricultural Policy", Economic Growth Center Discussion
Paper No. 301, Yale University, November 1978.
8. See Kindleberger, op. cit., for this application of
the Lewis model.
9. See, for instance, C. Palloix, L ' economie mondiale
capitaliste, Paris: Maspero, 1968. A similar result in a Hecksheer-Ohlin
model with increasing returns to scale is presented in P. Krugman, "Trade,
Accumulation and Uneven Development", Economic Growth Center Discussion
Paper No. 311, Yale University, May 1979.
10. See B. Balassa, op.cit., p. 258 ff. for further evidence.
11. See J. Macedo, "O 'Triangulo Dourado' da CEE", Suplemento
"Economia e Finanças", Diário de Notícias,
10/10/73 reproduced in "Interdependencia Economica e Dependencia Externa.
Textos Praticos", mimeo. Catholic University of Portugal, 1975.
12. See T. Swan, "Economic Control in a Dependent Economy,"
Economic Record, March 1960, p. 51-66 and P. Kouri, Profitability
and Growth in a Small Open Economy, in A. Lindbeck, editor. Inflation
and Unemployment in Small Open Economies, Amsterdam: North-Holland,
1979, p. 129-142.
13. This expression was introduced by R. Cooper, The
Economics of Interdependence. New York: McGraw Hill, 1968 who used
the example of Belgium in the original Six. The original idea goes back
to A. Hirschmann, National Power and the Structure of Foreign Trade,
Berkeley. 1945.
14. Using revised productivity data from Banco de Portugal
for 1974 and 1975 the average is 5.1 percent p. a.
15. This emphasis is shared by B. Balassa, Portugal in
Face of the Common Market, paper presented at the Second International
Conference on the Portuguese Economy in September 1979, hereafter referred
to as Gulbenkian 1979.
16. Sees. Kuznets, Economic Growth of Nations. Harvard,
1971, p. 231 and H.Chenery, Structural Change and Development Policy.
Oxford, 1979, p. 18. Lobão, op. cit., Table 4, p. 189 reports agricultural
labor productivity relative to total which fell from 57 percent in 1960
to 51 percent in 1970 and 39 percent in 1976.
17. It was 7.7 percent in 1963, 8.8 percent in 1968;
10.8 percent in 1973 and 7.6 percent in 1974. See World Bank, Agriculture.
18. See R. Amaro, "A agricultura portuguesa e a integração
europeia: a experience do passado (EFTA) e a perspectiva do futuro (CEE)",
Análise Social, Vol. 14, 1978, 2, p. 278-310.
19. The share of petroleum imports in the trade deficit,
20 percent in 1973, was over 30 percent in 1977 and 1978.
20. Accordingly, there has been considerable debate amongst
agricultural economists about the consequences of Agrarian Reform. A noted
instance is the comment of J. Espada to the paper of F. Estacio and A.
Egbert, "O Sector Agricola em Portugal: Caracterização e
Medidas de Politica", in The German Marshall Fund and the Gulbenkian Foundation
(sponsors), Conferencia Internacional sobre Economia Portuguesa,
Lisbon, 1977, hereafter referred to as Gulbenkian 1977, p. 103-151, assessed
in Economia, January 1977, pages 159-162. A passionate description
of the process can be found in A. Estrela, "A Reform Agrária Portuguesa,"
Análise Social, n° 54, 1978, 2, p. 237-252.
21. Representing 72.3 percent of the UCP area and 81
percent of employment in UCP 's. See World Bank, Agriculture, cit.
22. Data from Heimpel, "The Cooperation of the EC with
Southern Europe: Some Problems in the Integration of Portugal's Agriculture
into the Common Market" in Gulbenkian, 1977, cit., pages 253-257. See also
Lobão,op. cit.
23. See E. Thorbecke and E. Pagoulatos, "The effects
of European economic integration on agriculture" in Balassa, European,
cit., page 306. See also Jossling, op. cit.
24. See Katseli, op. cit., page 6.
25. See H.Kim, Agricultural Prices and Subsidies - Portugal
Case Study, World Bank mimeo, 1978.
26. Exports and Imports fob as a proportion of gdp in
market prices from IFS. Trends in the 60's and early 70's are discussed
in Macedo, Interdependencia, cit., p. 271 ff.
27. These percentages are based on figures in 1970 prices
derived at the World Bank. They probably underestimate the full contribution
of export growth because they exclude indirect effects.
28. In 1974-76 the average share of consumption goods
in exports was 38 percent and 16 percent in imports. The figure for intermediate
goods were 51 percent and 62 percent, respectively, and for investment
goods II percent and 21 percent, respectively. See J. Toscano, Avaliação
Socioeconomica de proiectos segundo a metodologia do Banco Mundial, Banco
de Fomento Nacional Estudos 14, Lisbon, 1978, p. 54 with data from INE,
Estatisticas do Comércio Externo, Vol. II.
29. These figures were obtained from the 1970 input-output
matrix normalized to match the 1975 figures for imports. The import content
of exports was 33.5 percent. See Abel et al., op. cit., p. 79. Without
the normalization the import content of investment and exports drop to
35 percent and 25 percent respectively. It is therefore likely that the
figures from the 1974 matrix would be higher than the ones quoted in the
text.
30. The numbers presented are the natural logs multiplied
by 100 of the ratio aix/aim
where aiz =Zi/SiZi
(and Z= X,M) is the share of commodity i. More complex indicators can be
found in B. Balassa, "Trade Liberalization and 'Revealed' Comparative Advantage",
The Manchester School of Economic and Social Studies, Vol. 33, No.
2, 1965, p. 99-123 and "'Revealed' Comparative Advantage Revisited: An
Analysis of Relative Export Shares of the Industrial Countries, 1953-1971",
ibid., Vol. 45, No. 4, 1977, pages 327-44. The values reported in Table
4.10 were taken from J. Donges and K.W.Schatz, Growth and Trade Aspects
of the Proposed Enlargement of the European Community, Kieler Arbeitspapier
No. 79, Kiel Institute of World Economics, October 1978, Table 7, page
18.
31. See figures for 1960 and 1970 in Donges-Schatz, op.
cit.
32. See other comparative evidence on this point in J.
Donges and K.W. Schatz, "Competitiveness and Growth Prospects in an Enlarged
European Community," The World Economy, May 1979, pages 213-228
(abbreviated version of op. cit.) and in R. Eckhaus, Development Strategies
and the International Division of Work, in Gulbenkian, 1979, cit.
33. In 1975 the proportion of foreign direct investment
to the current account was 5 percent both in Portugal and Spain (less than
I percent for Greece) whereas the proportion of total private capital was
2.3 percent for Portugal and almost 34 percent for Spain. See Banco de
Portugal 1977 Report, page 131.
34. See J. Macedo, Foreign Direct Investment in Metropolitan
Portugal: A legal and economic analysis, unpublished manuscript, Yale University,
June, 1972 adapted in Interdependencia, op. cit., p. 291.
35. See J. Donges, Foreign Investment in Portugal, in
Gulbenkian 1979. The Institute of Foreign Investment warns however that
stock data are quite unreliable. See IIE, Investmento Estrangeiro em Portugal
1978/79, mimeo, 1980.
36. The restrictive foreign investment code of 1976 has
been replaced by a more attractive regime. See J. Leitão, "O Investimento
Estrangeiro na Estratégia de Desenvolvimento da Economia Portuguesa.
Alguns aspectos jurídicos e de política legislativa", in
Confederação da Industria Portuguesa, I Congresso das
Actividades Economicas, Vol. I, Lisbon, 1979, pages 59-72.
37. See J. Macedo, loc. cit., using data from the Luso-German
Chamber of Commerce. For further evidence see M.B. Martins, Multinacionais
em Portugal, Lisbon: Estampa, 1975 and L.S.Matos,Investimentos estrangeiros
em Portugal, Lisboa: Seara Nova, 1972.
38. See J. Donges, op. cit., p. 12 who uses discriminant
analysis for this purpose.
39. The figures for workers migration include clandestine
emigration and are taken from M. Barbosa, Growth Migration and the
Balance of Payments in a Small Open Economy, unpublished Ph.D. Thesis,
Yale University, 1977, p. 206, series (3). Some alternative estimates for
the 1970's are:
| (1) | (2) | (3) | (4) | (5) | (6) | ||
| 1970 | 110. | 5 | 168. | n.a. | 179 | n.a. | -149 |
| 1 | 80. | 3 | 139. | n.a. | 150 | n.a. | n.a. |
| 2 | 44. | 2 | 94. | n.a. | 105 | n.a. | n.a. |
| 3 | 64. | 2 | 110. | 85.0 | 120 | 80.0 | - 72 |
| 4 | 23. | 9 | 64. | 23.0 | 70 | 43.0 | 165 |
| 5 | 9. | 0 | 35. | 7.0 | 40 | 25.0 | 336 |
| 6 | n.a | . | n.a. | n.a. | 35 | 17.0 | - 24 |
| 7 | n.a | . | n.a. | n.a. | n.a. | 17.0 | n.a. |