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Trade liberalization and the allocation over domestic and foreign supplies: a case study for Spanish manufacturing

The purpose of the paper is to investigate whether Spain's accession to the European Union in 1986 caused a structural break in the allocation of total supplies of manufactures over domestic and foreign supplies. To that end the homogeneity-constrained Almost Ideal Demand System is used to specify the long-run equilibrium relationships between the shares in total supplies and total real demand and relative prices and a first-order error correction mechanism in order to describe the adjustment process to equilibrium. Using a formal statistical test, it turns out that a structural break actually occurred and led to a rather sharp decrease in the share of Spain and an increase in the shares of the other members of the European Union.