A real devaluation and an internal devaluation: What differences in practice? The example of Spain

To improve its cost competitiveness, Spain practised a real devaluation in 1992-93; and an internal devaluation ( reduction in labour costs) from 2009. We compare the effects of these two types of devaluation on: Foreign trade prices ; Real wages, labour costs; Profits; Foreign trade, domestic demand; GDP and unemployment . We see that the main difference between a real devaluation and an internal devaluation is that with an internal devaluation, the loss of real wage, demand, GDP and employment is far more drastic for the same foreign trade gain.