Working Paper: CEPR ID: DP18323
Authors: Davis Kedrosky; Nuno Palma
Abstract: As late as 1750, Portugal had a high output per head by Western European standards. Yet just a century later, Portugal was this region's poorest country. In this paper we show that the discovery of massive quantities of gold in Brazil over the eighteenth century played a key role in the long-run development of Portugal. The country suffered from an economic and political resource curse. A counterfactual based on synthetic control methods suggests that by 1800 Portugal's GDP per capita was 40 percent lower than it would have been without its endowment of Brazilian gold.
Keywords: Dutch disease; resource curse; early modern Portugal; the little divergence
JEL Codes: N10; N13; N50; N53; N73
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Influx of gold (N11) | Appreciation of the real exchange rate (F31) |
| Appreciation of the real exchange rate (F31) | Contraction in the export sector (F14) |
| Contraction in the export sector (F14) | Decreased competitiveness and rising trade deficits (F69) |
| Influx of gold (N11) | GDP per capita 40% lower than without the gold (F69) |
| Influx of gold (N11) | Economic stagnation (N14) |