The Bank of Spain published an occasional paper and presentation for the Seminar on Iberian Economic Integration in Lisbon, finding that integration between Spain and Portugal is strongest in goods trade, wholesale electricity markets and banking. Services trade, labour mobility, foreign direct investment and portfolio investment remain comparatively limited relative to other European Union country pairs. Implicit trade barriers continue to constrain deeper integration, particularly in services. Bilateral goods trade rose from 0.27% of the countries’ combined gross domestic product (GDP) in 1980 to 2.81% in 2024. Services trade reached only 0.55% in 2024, with the integration gap mainly attributable to services other than travel. Estimated implicit barriers have effects equivalent to tariffs of around 20% in manufacturing and more than 100% in services. Halving those barriers could increase bilateral trade and GDP in both countries. Electricity integration is much stronger: wholesale prices differed by no more than EUR 1 per megawatt-hour in about 95% of hours over 2015–2025. Portugal’s pumped hydro storage absorbs surplus Spanish solar generation around midday, while Portuguese hydropower supports exports to Spain in the morning and at night. Bilateral migration remains low compared with other relevant EU country pairs. Workers moving between the two countries are concentrated in urban areas by number but account for larger employment shares in border regions. The wage gap has narrowed slightly but remains substantial and cannot be explained by sector, age and gender composition. Financial integration is comparatively stronger through banking than through direct and portfolio investment. Spain is Portugal’s largest financial counterparty, accounting persistently for about a quarter of its euro area exposures, while Portugal represents a much smaller share of Spain’s external exposures.
Bank of Spain assesses uneven Iberian economic integration, highlighting persistent barriers to services trade
The Bank of Spain’s assessment of Iberian economic integration finds strong links in goods trade, electricity markets and banking, but comparatively limited services trade, labour mobility and direct and portfolio investment. Implicit trade barriers are equivalent in effect to tariffs of around 20% in manufacturing and more than 100% in services, with reductions offering gains in trade and GDP. Financial links are asymmetric: Spain is Portugal’s largest financial counterparty, while Portugal accounts for a much smaller share of Spain’s external exposures.