Wednesday, October 2

How can one of the richest nations be so poor?

Spain is a strange country, at least from an economic perspective. It earned tons of money, had high education, etc. etc. See here, here and here for some more information on this.

But still ended up in comparative poverty. Why? This article explains a bit more on the history behind this issue.

The timing of and reasons for Spain's decline have been subjects of ongoing debate since Earl Hamilton's seminal contribution, and attempts have been made at quantifying Spain's relative position over time.2 It has recently been suggested that Spain had attained affluence prior to its American expansion, and that this increased throughout the sixteenth century, so that by 1590 it was among the top countries in Europe in per capita income terms.3 This finding raises the crucial question of when, and why, Spain achieved such early prosperity.

This article provides a tentative answer by examining Spain's comparative performance over the half-millennium between the end of the Reconquest (1264) and the beginning of modern economic growth by the mid-nineteenth century.4 It proceeds, first, by estimating trends in output. Specifically, movements in agricultural output are drawn using an indirect demand approach (section II), while those in industry and services are proxied through changes in urban population not living on agriculture (section III). Thus, trends in per capita output over the period 1280–1850 are obtained (section IV).5 A re-examination of Spain's relative position within western Europe closes the article.

From our quantitative exercise we conclude that two distinctive regimes appear to exist in preindustrial Spain. The first one (1270s–1590s) corresponds to a high land–labour ratio frontier economy, largely pastoral, trade-oriented, and led by towns. Wage and food consumption levels were relatively high. Sustained per capita growth took place from the 1270s, after the de facto end of the Reconquest (figure 1), until the 1340s, when the Black Death (1348) and the Spanish phase of the Hundred Years War (1365–89) interrupted it. Growth resumed, then, only interrupted by late fifteenth-century political turmoil. The second regime (1600s–1810s) corresponds to a more agricultural and densely populated, low-wage economy, with growth occurring along a lower path.

Thus, Spanish relative affluence by 1492 can be tracked down to the pre-Black Death era. Unlike most of western Europe and the eastern Mediterranean, where the highest standards of living of the pre-industrial era were achieved after recovering from the plague by the mid-fifteenth century, in Spain the peak level of output per capita was reached in the 1340s. In pre-plague Spain, Malthusian forces were mostly absent except for a few, if any, areas along the Mediterranean coast. Sustained progress took place after the Reconquest in the context of a frontier economy, urban expansion, and openness to trade. Although its death toll was lower, the plague had a much more damaging impact in Spain than in western Europe since, far from releasing non-existent demographic pressure on land, it destroyed the equilibrium between scarce population and abundant resources. Pre-Black Death per capita income levels were temporarily recovered by the late sixteenth century, but were only exceeded after 1820.

Thus, the fall in output per capita in the late fourteenth century and, again, in the early seventeenth century represent two major steps in Spain's (absolute and relative) decline. Later, in the early nineteenth century, although demographic expansion was paralleled by an increase in GDP per capita, paradoxically the relative decline of Spain deepened.

So the plague was to blame for some of Spain’s issue with economic growth. Still no clear answer and needs much more analysis, I am afraid.

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