The Portuguese Slump and Crash and the Euro Crisis
AbstractBetween 2000 and 2012, the Portuguese economy grew less than the United States during the Great Depression and less than Japan during its lost decade. This paper asks why this happened, with a particular focus on the slump between 2000 and 2007. It describes the main facts of Portugal's recent economic history, evaluates some possible explanations for its dismal performance, and proposes a new hypothesis based on the misallocation of abundant capital flows from abroad. I put forward a model of credit frictions to show that if financial integration exceeds financial deepening, productivity will fall, generating a slump as relatively unproductive firms in the nontradables sector expand at the expense of more productive tradables firms. This explanation can also potentially account for the similarities and the differences between Portugal on the one hand, and Ireland and Spain on the other, during this period, and for some features of the crash in Portugal after 2010.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 19288.
Date of creation: Aug 2013
Date of revision:
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Other versions of this item:
- Reis, Ricardo, 2013. "The Portuguese Slump and Crash and the Euro Crisis," CEPR Discussion Papers 9591, C.E.P.R. Discussion Papers.
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
- E65 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Studies of Particular Policy Episodes
- F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
- F44 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Business Cycles
- N14 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - Europe: 1913-
- O52 - Economic Development, Technological Change, and Growth - - Economywide Country Studies - - - Europe
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