American treasure and the decline of Spain

Let London manufacture those fine fabrics of hers to her heart’s content; Holland her chambrays; Florence her cloth … Milan her brocades, Italy and Flanders their linens … so long as our capital can enjoy them; the only thing it proves is that all nations train journeymen for Madrid … for all the world serves her and she serves nobody

Alfonso Núñez de Castro, writing in 1675

New working paper (joint with Carlos Javier Charotti and João Pereira dos Santos). Available as CEPR working paper (gated) and as a University of Manchester working paper here (ungated).

Spain was one of the world’s richest countries around 1500. Two centuries later it was poor and 2nd-rank. We investigate why.

We use synthetic controls to investigate why Spain failed. We find support for the resource curse hypothesis: the its endowment of American precious metals had negative economic and political consequences for Spain in the long run, as was already argued by some contemporaries in sixteenth-century debates, and more recently by Earl . J. Hamilton in the 1930s and by Mauricio Drelichman in the early 2000s.

Here’s the abstract for our paper:

Spain was one of the world’s richest countries and a first-rank European power around 1500. Two centuries later it was a backwater. In this paper, we study the long-run impact of the influx of silver from the New World since 1500 for the economic development of Spain. Compared with a synthetic counterfactual, the price level in Spain increased by up to 200% more by the mid-seventeenth century. Spain’s GDP per capita outperformed other European nations for around a century: by 1600, it was close to 40% higher than in its synthetic counterfactual. However, this effect was reversed in the following 150 years: by 1750, GDP per capita was 40% lower than it would have been if Spain had not been the first-wave receiver of the American treasure.

And here are the main figures.

Price level:

Price level

GDP per capita:

GDP per capita

And GDP:

GDP
Example of an actual chest used to bring the treasure to Spain. Each ship could transport several of these.
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