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The Curse of Moctezuma: American Silver and the Dutch Disease, 1501-1650

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Author Info
Mauricio Drelichman (The University of British Columbia)

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Abstract

This study formalizes and empirically tests the conjecture that the discovery of large silver reserves in its American colonies triggered in Spain a phenomenon known as the Dutch disease,diverting factors of production to non-traded goods industries and undermining the Spanishcomparative advantages in the Early Modern Age. I develop an open-economy model to mimic the economic conditions in Spain in the wake of the silver discoveries, which predicts anincrease in the relative price of non-traded goods following a positive wealth shock. I thenconstruct price indexes for traded and non-traded goods using Earl Hamilton's price series and new consumption baskets. Using a Markov- switching regression model, I identify a strong andpersistent increase in the relative price of non-traded goods coinciding with the silverdiscoveries, lasting for almost three decades and reversing itself only after the 1575 and 1579 crown bankruptcies. These findings largely support the Dutch Disease hypothesis.

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Paper provided by EconWPA in its series Economic History with number 0404001.

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Length: 44 pages
Date of creation: 13 Apr 2004
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Handle: RePEc:wpa:wuwpeh:0404001

Note: Type of Document - pdf; pages: 44
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Web page: http://129.3.20.41

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Related research
Keywords: Early Modern Spain Dutch Disease Prices Consumption Baskets Switching Regression

Find related papers by JEL classification:
N1 - Economic History - - Macroeconomics and Monetary Economics; Growth and Fluctuations
N5 - Economic History - - Agriculture, Natural Resources, Environment and Extractive Industries

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  1. Torvik, Ragnar, 2001. "Learning by doing and the Dutch disease," European Economic Review, Elsevier, vol. 45(2), pages 285-306, February. [Downloadable!] (restricted)
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  16. Murphy, Kevin M & Shleifer, Andrei & Vishny, Robert W, 1991. "The Allocation of Talent: Implications for Growth," The Quarterly Journal of Economics, MIT Press, vol. 106(2), pages 503-30, May. [Downloadable!] (restricted)
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  17. Asea, Patrick K. & Lahiri, Amartya, 1999. "The precious bane," Journal of Economic Dynamics and Control, Elsevier, vol. 23(5-6), pages 823-849, April. [Downloadable!] (restricted)
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  19. Sergio Rebelo & Carlos A. Vegh, 1995. "Real Effects of Exchange Rate-Based Stabilization: An Analysis of Competing Theories," NBER Working Papers 5197, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Mauricio Drelichman, 2004. "All that Glitters: Precious Metals, Rent Seeking and the Decline of Spain," Economic History 0404002, EconWPA. [Downloadable!]
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