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Independence and trade boycott

On September 27th Catalonia could take one more step on its road to becoming a new European country. The so-called "Catalan process" is by nature eminently political, but it has considerable economic implications. The most important are those related directly to the Catalan state itself; that is, sovereignty in matters of taxation and public expenditures, and economic policy. The viability of an independent Catalan state has been widely discussed and the majority of experts who have studied the topic have no doubts that a Catalan state would be perfectly viable.

However, apart from the Catalan state itself, would the Catalan economy be viable? Catalonia is a small European country with an above average standard of living and a commercial surplus with the rest of the world, and this should continue, especially if it overcomes the political challenge of remaining within the European economic space and the Eurozone.

Nevertheless, the political tensions arising from independence could generate negative reactions in regards to trade with Spain. In particular, there is often talk of a possible boycott of Catalan products. If this happens, what consequences would it have for the Catalan economy? In 2011 we answered such questions in a book (Sense Espanya --Without Spain--, published by Pòrtic) using data from the Input Output Table for 2005. Recently, Idescat (1) has published the data for 2011, which has allowed us to repeat the exercise. The results are collected in the document "The Economic Impact of a Reduction in Trade Flow between Catalonia and the rest of Spain", prepared within the framework of the Commission on the Catalan Economy of Catalonia’s Board of Economists.

To better understand the results we obtained, it’s worth mentioning the assumptions on which the work rests: 1) Independence would not affect the commercial relations of Catalonia with the rest of the world, only, if it is the case, with Spain; 2) a boycott would bring a reduction of Catalan exports to Spain, and a corresponding reduction in the economic activity in Catalonia; 3) symmetry of response: a boycott on the part of the Spanish market would be followed by a boycott of the same type and intensity by the Catalan market against products produced in Spain; 4) the drop in purchases from Spain would generate more internal activity in Catalonia to make up for it, and would also boost imports; and 5) there are two levels of differentiated boycotts: that of businesses, more moderate or non-existent, and that of end consumers, of greater intensity. Starting from here, we use simple calculation techniques to create a grid of impact scenarios for different levels of possible boycotts, with the reduction of internal activity that it would bring, measured by Gross Added Value, equivalent to GDP.

The values obtained for 2011 show an impact that has generally decreased compared to the 2005 figures. In the study there is an example of a relatively strong boycott (20% on the part of consumers and 10% on the part of companies), and in this case the reduction in activity due to the boycott would be 1.7%, an impact 15.1% lower than was calculated for 2005. This result was obtained by assuming, to simplify things, that companies would not adopt strategies to adapt themselves to the new situation, such as reducing prices or looking for alternative markets, an assumption that is really very conservative.

The main conclusion of our work is probably that the Catalan economy has continued to reduce its dependence on the Spanish market, as a result of economic globalization, efforts by companies to continue their internationalization processes (a structural trend), and the economic weakness, these past years, of the Spanish economy, the main and most traditional destination for Catalan exports.

In general, then, with internationalization the Catalan economy is becoming less and less vulnerable to a hypothetical reduction of trade with Spain. The Catalan situation contrasts with that of Scotland, a nation that enjoys net tax transfers with the United Kingdom and has an elevated, growing dependence on the British market. It is said that economic factors tipped the Scottish referendum against independence. But in the Catalan case, these factors would most likely play in favor.

Modest Guinjoan
Xavier Cuadras

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(1) N.T. The Statistical Institute of Catalonia (Idescat) is the Government of Catalonia's body specializing in statistics.